1. Sanderson Sand Co. is looking at 2 Projects- PROJECT N and PROJECT O. The cashflows of the 2 projects are as follows:
PROJECT N: PROJECT O:
Year 0 (3,000) Year 0 (5,000)
Year1 1,700 Year 1 3,200
Year 2 1,600 Year 2 1,800
Year 3 1,000 Year 3 900
Year 4 1,300 Year 4 700
Year 5 500
Year 6 400
The firm's cost of capital is 10%.
Calculate the replacement-chain NPV for each project. Which project would be preferred under the replacement chain method?
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