Expansion versus replacement cash flowsTesla Systems has estimated the cash flows over the 5-year lives for two projects, A and B. These cash flows are summarized in the following table.

Project A Project B Initial investment -$4,650,000 $1,546,000 Year Operating cash flows 1 $558,000 $387,000 2 918,000 387,000 3 1,350,000 387,000 4 2,215,000 387,000 5 3,402,000 387,000

*After-tax cash inflow expected from liquidation.

a. If Project A, which requires an initial investment of , is a replacement for Project B and the 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 viewed as a special form of a replacement decision? Explain.