1. Sanderson Sand Co. is looking at 2 projects Project N and Project O. The cashflows of the 2 projects are as follows:

Project N Project O

Year 0 (3000) Year 0 (5000)

Year 1 1,700 Year 1 3,200

Year 2 1,600 Year 2 1,800

Year 3 1,000 Year 3 900

Year 4 1,300 Year 4 700

Year 5 500 Year 6 400

The firms cost of capital is 10%.

Calculate the replacement-chain NPV for each project. Which project would be preferred under the replacement chain method?

2. Kermit Kite Co. has 2 projects under consideration Project C and Project D with the following cashflows.

Project C Project D

Year 0 (800,000) Year 0 (360,000)

Year 1 450,000 Year 1 200,000

Year 2 350,000 Year 2 265,000

Year 3 215,000

The firms cost of capital is 12%.

Calculate the EAA for each project. Which is the preferred project under EAA and why?