8)The second capital budgeting decision which Sharpe and you were asked to analyze involves choosing between two mutually exclusive projects, S and L, whose cash flow are set forth below:

Expected Net Cash Flow

Year

Project S

Project L

0

($400,000)

($400,000)

1

240,000

134,000

2

240,000

134,000

3

-

134,000

4

-

134,000

a)Now assume that the cost to replicate Project S in 2 years is estimated to be $420,000 because of inflationary pressures. Similar investment cost increases will occur for both projects in Year 4 and beyond. How would this affect the analysis? Which project should be chosen under this assumption?