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Category > Business & Finance Posted 07 Jun 2017 My Price 7.00

Expansion versus replacement cash flows Edison Systems

Expansion versus replacement cash flows Edison Systems has estimated the cash flows over the 5-year lives for two projects, A and B. These cash flows are summarized in the following table.

 

Project A

Project B

Initial investment

$40,000

$12,000a

Year

Operating cash inflows

1

$10,000

$ 6,000

2

12,000

6,000

3

14,000

6,000

4

16,000

6,000

5

10,000

6,000

a. If project A were actually a replacement for project B and if the $12,000 initial investment shown for project B were the after-tax cash inflow expected from liquidating it, what would be the relevant cash flows for this replacement decision?

b. How can an expansion decision such as project A be viewed as a special form of a replacement decision? Explain

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Status NEW Posted 07 Jun 2017 06:06 AM My Price 7.00

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