Question: Lithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and

Lithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. Lithium, Inc.'s required rate of return for these projects is 10%. Which project would you recommend using the replacement chain method to evaluate the projects with different lives?

A. Both projects will be valued the same since they are now both four year projects.

B. Project B because its NPV is higher than Project A's replacement chain NPV of $47,623

C. Project A because its replacement chain NPV is $45,642, which is less than the NPV for Project B

D. Project A because its replacement chain NPV is $76,652, which exceeds the NPV for Project B

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