Two mutually exclusive projects

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In an unrelated analysis, you have the opportunity to choose between the following twomutually exclusive projects, Project T (which lasts for two years) and Project F (whichlasts for four years):Expected Net Cash FlowsYear Project T Project F0 -$100,000 -$100,0001 60,000 33,5002 60,000 33,500333,500433,500

The projects provide a necessary service, so whichever one is selected is expected to berepeated into the foreseeable future. Both projects have a 10% cost of capital.(1) What is each project's initial NPV without replication?(2) What is each project's equivalent annual annuity?(3) Apply the replacement chain approach to determine the projects' extended NPVs.Which project should be chosen?(4) Assume that the cost to replicate Project T in 2 years will increase to $105,000 dueto inflation. How should the analysis be handled now, and which project should bechosen?

Reference no: EM132585287

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