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Provide a higher npv in the four-year term

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Farmer Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and repeatable. 

Year                         0               1               2               3               4

CFS                         -$950        $600         $700                 

CFL                     -$2,100        $600         $800         $900   $700

WACC: 11%

One suggestion is to use the replacement chain to make the two projects equal in life by repeating Project S at end of the 2nd year. If this method is used, which project is to provide a higher NPV in the four-year term? Show the calculations.

Reference no: EM131765199

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