Tesla 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.

a. If Project A, which requires an initial investment of $4,648,000, is a replacement for Project B and the $ 1,542,000 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 viewed as a special form of a replacement decision? Explain.

1 Project A Project B Initial investment - $4,648,000 $1,542,000* Year Operating cash flows $558,000 $380,000 2 924,000 380,000 3 1,357,000 380,000 4 2,223,000 380,000 5 3,402,000 380,000 *After-tax cash inflow expected from liquidation