Elaine Smith has been given responsibility for developing General Pacific Companys capital budgeting policy manual. In a meeting with her team, who makes the following statements:

Statement 1. The equivalent annual annuity approach assumes continuous replacements can be made at the same cost each time until the assets life ends.

Statement 2. In comparing mutually exclusive projects with unequal lives, you should always choose the project which has the highest NPV.

Is Smith most likely correct or incorrect with regards to the statements?