Question: The Sky Limited is considering two alternative projects. Project A has an expected life of 5 years, will cost Sh 1 0 0 million, and

The Sky Limited is considering two alternative projects. Project A has an expected life of 5 years, will cost Sh100 million, and will produce net cash flows of Sh30 million per year. Project B has a life of 10 years, will cost Sh 132 million, and will produce net cash flows of Sh 25 million per year. The cost of capital is 12 percent. Required: a) If the projects cannot be repeated, which project should be selected if Sky uses Net Present Value (NPV) as its criterion for project selection? b) Assume the projects can be repeated and that there are no anticipated changes in the cash flows. Use the replacement chain analysis to determine the NPV of the project selected.

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