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j. As a separate project (Project P), you are considering sponsorship of a pavilion at the upcoming Worlds Fair. The pavilion would cost $800,000, and it is expected to result in $5 million of incremental cash inflows during its single year of operation. However, it would then take another year and $5 million of costs to demolish the site and return it to its original condition. Thus, Project Ps expected net cash flows look like this (in millions of dollars):

Year	Net Cash Flow
0	-$0.8
1	5.0
2	-5

The project is estimated to be of average risk, so its cost of capital is 10%.

(1) What are normal and nonnormal cash flows?

(2) What is Project Ps NPV? What is its IRR? Its MIRR?

(3) Draw Project Ps NPV profile. Does Project P have normal or nonnormal cash flows? Should this project be accepted?

k. In an unrelated analysis, you have the opportunity to choose between the following two mutually exclusive projects, Project T (which lasts for 2 years) and Project F (which lasts for 4 years):

Expected Net Cash Flows

Year	Project T	Project F
0	-$100,000	-$100,000
1	60,000	33,500
2	$60,000	33,500
3	-	33,500

4 - 33,500

The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 10% cost of capital.

(1) What is each projects initial NPV without replication?

(2) What is each projects equivalent annual annuity?

(3) Apply the replacement chain approach to determine the projects extended NPVs. Which project should be chosen?

(4) Assume that the cost to replicate Project T in 2 years will increase to $105,000 due to inflation. How should the analysis be handled now, and which project should be chosen?

l. You are also considering another project that has a physical life of 3 yearsthat is, the machinery will be totally worn out after 3 years. However, if the project were terminated prior to the end of 3 years, the machinery would have a positive salvage value. Here are the projects estimated cash flows:

Year	Initial Investment and Operating Cash Flows	End-of-Year Net Salvage Value
0	-$5,000	$5,000
1	2,100	3,100
2	2,000	2,000
3	1,750	0

Using the 10% cost of capital, what is the projects NPV if it is operated for the full 3 years? Would the NPV change if the company planned to terminate the project at the end of Year 2? At the end of Year 1? What is the projects optimal (economic) life?