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P11-3 Expansion Versus Replacement Cash Flow I have attached the document I need help with. Thank you! P11-3 Expansion versus replacement cash flows Edison Systems
P11-3 Expansion Versus Replacement Cash Flow
I have attached the document I need help with. Thank you!
P11-3 Expansion versus replacement cash flows Edison Systems has estimated the cash flows over the 5-year lives for two projects, A and B. These cash flows are summarized in the table below. Initial investment Year 1 2 3 4 5 aAfter-tax cash inflow expected from liquidation. Project A Project B $40,000 Operating cash inflows $10,000 $ 6,000 12,000 6,000 14,000 6,000 16,000 6,000 10,000 6,000 $12,000a 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 liquidating it, what would be 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
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