Expected Net Cash Flow
Year	Project S	Project L
0	(100,000)	(100,000)
1	60,000	33.500
2	60,000	33.500
3	--	33.500
4	--	33,500

Both of these projects are in Indian Rivers main line of business, orange juice, and the investment, which is chosen, is expected to be repeated indefinitely into the future. Also, each project is of average risk, hence each is assigned the 10 percent corporate cost of capital.

a. What is each projects single-cycle NPV? Now apply the replacement chain approach and then repeat the analysis using the equivalent annual annuity approach. Which project should be chosen, S or L? Why?

b. Now assume that the cost to replicate Project S in two years is estimated to be $105,000 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?