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

Expected Net Cash Flows

Year Project T Project F

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

1 $60,000 $35,000

2 $60,000 $35,000

3 $33,500

4 $33,500

1- What is each project's equivalent annual annuity?

2.- Apply the replacement chain approach to determine the projects' extended NPVs. Which project should be chosen?

3.- Assume that the cost to replicate Project T in 2 years will increase to $105,000 due to inflation. How should the analysis be handled now, and which project should be chosen?