Use the data below for problems 6 to 10.

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Year	Proj Y	Proj Z
0	($210,000)	($210,000)
1	200,000	95,000
2	95,000	78,000
3		73,000
4		87,500

The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have an 11% cost of capital.

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6. What is each projects initial NPV without replication?

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7. What is each projects equivalent annual annuity?

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8. Now apply the replacement chain approach to determine the shorter projects extended NPV. Which project should be chosen?

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9. Now assume that the cost to replicate Project Y in 2 years will increase to $240,000 because of inflationary pressures. How should the analysis be handled now, and which project should be chosen?

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