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Expected Net Cash Flows                                       &n

Expected Net Cash Flows

                                            Year                    Project T                               Project F

                                               0                      ($100,000)                            ($100,000)

                                               1                           75,000                                  40,000

                                               2                           65,000                                  42,000

                                               3                              —                                      44,000

                                               4                              —                                      46,000

The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 12% cost of capital.

c.   Suppose you replicate Project T so that it has the same life as Project F. Which project would you choose?

NPV Project F = $29,748.59

EAA Project F = $9,794.26

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