Expansion versus replacement cash flows: Tesla Systems has estimated the cash flows over the 5 year lives for two projects. A and B. These cash flows are summarized i the following table.

Project A Project B

Initial investment -$4,645,000 $1,552,000

Year Operating cash flows

1 $558,000 $380,000

2 $925,000 $380,000

3 $1,359,000 $380,000

4 $2,215,000 $380,000

5 $3,399,000 $380,000

After tax cash inflow expected from liquidation.

A. If Project A, which requires an initial investment of -$4,645,000 is replacement for Project B and the $1,552,000 initial investment shown for Project B is the after tax cash inflow expected from liquidating it, what would be the net cash flows for this replacement decision?

B. How can an expansion decision such as Project A be reviewed as a special form of a replacement decision? Explain.

A. Calculate the relevant cash flows for this replacement decision:

Relevant

Year Cash Flows

0 $________

1 $________

2 $________

3 $________

4 $________

5 $________