Two mutually exclusive projects are analyzed using a 12.5% discount rate. Project 1 has a life of 6 years and Project 2 has a life of 3 years. The NPV of Project 1 is $43 million and the NPV of Project 2 is $27 million. When Project 2 ends in year 3, it can be renewed for another 3 years. However, due to inflation and technology improvements, the initial outlay will increase from $25 million to $32 million when the project is renewed at the end of year 3. All other cash flows remain the same. Using the least common multiple method, which project should the company choose?

Question 2 options:

	Project 2 should be chosen because the 6-year NPV for replicating it is $45.96 million, which is greater than $43 million.
	Project 1 should be chosen because its NPV is greater than the 6-year NPV for replicating Project 2, $41.05 million.
	Project 1 should be chosen because its NPV is greater than the 6-year NPV for replicating Project 2, $38.83 million.