You are also considering another project which has a physical life of 3 years; that 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 project's estimated cash flows:

Using the 10 percent cost of capital, what is the project's 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 project's optimal (economic) life?

What is each project's initial npv without replication?

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Initial Investment End-Of-Year And Operating Net Salvage Cash Flows Year Value $5,000 ($5,000) 2,100 3,100 2 2,000 2,000 1,750 3.