McPherson Trading is considering two mutually exclusive projects, one with a 5-year life and one with a 7-year life. The net cash flows from the two projects are as follows:

Year	Project A	Project B
0	-$40,000	-$ 40,000
1	20,000	25,000
2	20,000	25,000
3	20,000	25,000
4	20,000	25,000
5	20,000	25,000
6	20,000
7	20,000

Required:

Assuming a 10% required rate of return on both projects, calculate each project's EAA. Which project should be selected?

Calculate the present value of an infinite-life replacement chain for each project.

If a project requires additional investment in working capital, how should this be treated in calculating cash flows?

In general, how should inflation be incorporated into capital budgeting evaluations?