Expected Net Cash Flows Year Project A Project B 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...

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                                                                                  ExpectedNet Cash Flows
                                           Year                    ProjectA                               ProjectB
                                              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 isselected is expected to be repeated into the foreseeable future.Both projects have a 14% cost of capital.
a.   What is each project’s initial NPV withoutreplication?
b.   What is each project’s equivalent annualannuity?
c.   Suppose you replicate Project A so that it hasthe same life as Project B. Which project would you choose?

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ExpectedNet Cash Flows Year ProjectA ProjectB 0 ($100,000) ($100,000) 1 75,000 40,000 2 65,000 42,000 3 — 44,000 4 — 46,000The projects provide a necessary service, so whichever one isselected is expected to be repeated into the foreseeable future.Both projects have a 14% cost of capital.a. What is each project’s initial NPV withoutreplication?b. What is each project’s equivalent annualannuity?c. Suppose you replicate Project A so that it hasthe same life as Project B. Which project would you choose?