In an unrelated analysis, you have the opportunity to choose between the following two mutually exclusive projects, Project T (which lasts for two years) and Project F (which last for four years).

Expected Net Cash Flows

YEAR PROJECT T PROJECT F

0 ($100,000) ($100,000)

1 60,000 33,500

2 60,000 33,500

3 33,500

4 33,500

The project provided service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 10% cost of capital.

• What is each projects initial NVP without replication?
• What is each project?s equivalent annual annuity?
• Apply the replacement chain approach to determine the project?s extended NPV?s. Which project should be chosen?
• Assume that the cost to replicate Project T in 2 years will increase to $100,500 due to inflation. How should the analysis be handled now, and which project should be chosen?

In an unrelated analysis, you have the opportunity to choose between the following two mutually exclusive projects, Project T (which lasts for two years) and Project F (which last for four years). The project provided service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 10% cost of capital. (1) What is each projects initial NVP without replication? (2) What is each project's equivalent annual annuity? (3) Apply the replacement chain approach to determine the project's extended NPV's. Which project should be chosen? (4) Assume that the cost to replicate Project T in 2 years will increase to $100,500 due to inflation. How should the analysis be handled now, and which project should be chosen