Question: Farmer Co. is considering Projects S and L, whose cash flows are shown below.These projects are mutually exclusive, equally risky, and repeatable. Year 01234 CF

Farmer Co. is considering Projects S and L, whose cash flows are shown below.These projects are mutually exclusive, equally risky, and repeatable.

Year01234

CF_S -$950$600$700

CF_L-$2,100$600$800$900$700

WACC:11%

One suggestion is to use the replacement chain to make the two projects equal in life by repeating Project S at end of the 2^nd year.If this method is used, which project is to provide a higher NPV in the four-year term?Show the calculations.

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