Edison Systems has estimate the cash flows over the 5-year lives for tow projects, A and B. These cash flows are summarized in the table below.

Project A Project B

Initial investment $40,000 $12,000(after tax cash inflow expected from liquidation)

Year Operating Cash Inflows

1 $10,000 $6,000

2 12,000 6,000

3 14,000 6,000

4 16,000 6,000

5 10,000 6,000

a. If project A were actually a replacement for project B and the $12,000 initial investment shown for project B were the after-tax cash inflow expected from the liquidating it, what would the relevant cash flows for this replacement decision?

b. How can an expansion decision such as project A be viewed as a special form of a replacement decision? Explain.