Year 0 d. Use the equivalent annual annuity method to solve this problem. How does your In general, the equivalent annual annuity method will give the same decision as the replacement chain technique. Its advantage is that it often is computationally simpler, and it simplifies the handling of the time discrepancies that frequently arise in the replacement chain method. Problems ALLENGE 1. The Smith Pie Company is considering two mutually exclusive investments that would increase its capacity to make strawberry tarts. The firm uses a 12 percent cost of capital to evaluate potential investments. The two projects have the following costs and expected cash flow streams: Alternative A Alternative B Year Alternative A Alternative B - $30,000 -$30,000 5 $6,500 10,500 6,500 6,500 2 10,500 6,500 7 6,500 3 10,500 6,500 6,500 10,500 6,500 a. Using these data, calculate the net present value for Projects A and B. b. Create a replacement chain for Alternative A. Assume that the cost of replacing A will be $30,000 and that the replacement project will generate cash flows of $10,500 for years 5 through 8. Using these figures, recompute the net present value for Alternative A. c. Which of the two alternatives should be chosen, A or B? Why? answer compare with the one obtained in Part b? LENGE 2. BC Minerals is considering a new production process Two alternativa nieces of 1 6 8 4 AAR