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Consider the following mutually exclusive projects.

Year 0 1 2 3 4 5 6

Cash flows for Project REC -1000 500 1400 Cash flows for Project XYZ -1000 100 300 400 600 350 125

The appropriate WACC for both projects is 5% per year.

– Using the cash flows as given above, what is the Net Present Value (NPV) of Project REC? What is its Internal Rate of Return (IRR)?

– Using the cash flows as given above, what is the Net Present Value (NPV) of Project XYZ? What is its Internal Rate of Return (IRR)?

– Using the Replacement Chain method, which of the two mutually exclusive projects should be chosen? Why?

– Using the Equivalent Annual Annuity (EAA) method, which of the two mutually exclusive projects should be chosen? Why?