Tesla 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 Initial investment: -$4,648,000 Operating cash flows Year 1) $560,000 Year 2) 917,000 Year 3) 1,347,000 Year 4) 2,219,000 Year 5) 3,402,000 Project B Initial investment: $1,556,000 Operating cash flows Year 1) $373,000 Year 2) 373,000 Year 3) 373,000 Year 4) 373,000 Year 5) 373,000 A. If Project A, which requires an initial investment of −$4,648,000, is a replacement for Project B and the $1,556,000 initial investment shown for Project B is theafter-tax cash inflow expected from liquidating it, what would be the net 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. I need both anwsered & not rounded!!!
Tesla 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 Initial investment: -$4,648,000 Operating cash flows Year 1) $560,000 Year 2) 917,000 Year 3) 1,347,000 Year 4) 2,219,000 Year 5) 3,402,000 Project B Initial investment: $1,556,000 Operating cash flows Year 1) $373,000 Year 2) 373,000 Year 3) 373,000 Year 4) 373,000 Year 5) 373,000 A. If Project A, which requires an initial investment of −$4,648,000, is a replacement for Project B and the $1,556,000 initial investment shown for Project B is theafter-tax cash inflow expected from liquidating it, what would be the net 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. I need both anwsered & not rounded!!!
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Tesla 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
Initial investment: -$4,648,000
Operating cash flows
Year 1) $560,000
Year 2) 917,000
Year 3) 1,347,000
Year 4) 2,219,000
Year 5) 3,402,000
Project B
Initial investment: $1,556,000
Operating cash flows
Year 1) $373,000
Year 2) 373,000
Year 3) 373,000
Year 4) 373,000
Year 5) 373,000
A. If Project A, which requires an initial investment of −$4,648,000, is a replacement for Project B and the $1,556,000 initial investment shown for Project B is theafter-tax cash inflow expected from liquidating it, what would be the net 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.
I need both anwsered & not rounded!!!
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