Homework Answers
Solution:
a)Statement showing calculation of relevant cash flows:
| Year | Relevant cash flows(Project A-Project B) |
| 0 | ($4652,000-$1542,000)=-$3110,000 |
| 1 | ($558,000-$376,000)=$182,000 |
| 2 | ($934000-$376000)=$558,000 |
| 3 | ($1344,000-$376000)=$968,000 |
| 4 | ($2221,000-$376,000)=$1845,000 |
| 5 | ($3396,000-$376,000)=$3020,000 |
b)Expansion decision such as Project A is viewed as a special form of replacement decision because in some way the expansion decision is a replacement decision where the cash flows from the old project are ZERO.
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