QUESTION $5$: $(20$ points; $10$ points each$)$

a$.$ What is the criterion used by an analyst to decide whether the Net Replacement Cost or

the Liquidation Value is an appropriate way to measure the opportunity cost of the

existing assets?

b$.$ Let's assume in a pre$-$feasibility study of an investment project land was recorded as

expenditure in year $0$ in the cash flow statement at its market value of $$1$ million. Under

what conditions, should one use a real residual value $($i$.$e$.$ the value at the end of the

project$)$ for land that is greater than $$1$ million?