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Determining the inflationary pressures

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Reference no: EM132065612

Expected Net Cash Flow

Year Project S1project L

0 ($400,000) ($400,000)

1 240,000 134,000

2 240,000 134,000

3 - 134,000

4 - 134,000

The cost of capital is 10%. Assume that the cost to replicate Project S in 2 years is estimated to be $420,000 because of inflationary pressures. Similar investment cost increases will occur for both projects in Year 4 and beyond. How would this affect the analysis? Which project should be chosen under this assumption?

Reference no: EM132065612

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