Seattle Manufacturing is considering the purchase of one of three mutually exclusive projects for improving its assembly line. The fi rm plans to use a 14 percent cost of capital to evaluate these...

Seattle Manufacturing is considering the purchase of one of three mutually exclusive projects for improving its assembly line. The fi rm plans to use a 14 percent cost of capital to evaluate these equal-risk projects. The initial outlay and the annual cash outfl ows over the life of each project are shown in the following table. Project X Project Y Project Z Initial Outlay (CF0 ) $156,000 $104,000 $132,000 Year (t) Cash Outfl ows (CFt ) 1 $ 34,000 $ 56,000 $ 30,000 2 50,000 56,000 30,000 3 66,000 — 30,000 4 82,000 — 30,000 5 — — 30,000 6 — — 30,000 7 — — 30,000 a. Calculate the NPV for each project over its life. Rank the projects in descending order based on NPV. b. Use the equivalent annual cost (EAC) method to evaluate and rank the projects in descending order based on the EAC. c. Compare and contrast your fi ndings in parts (a) and (b). Which project would you recommend that the fi rm purchase? Why?