Expansion versus replacement cash flows Edison Systems has estimated the cash fl

Question

Expansion versus replacement cash flows Edison Systems has estimated the cash flows over the 5-year lives for two projects, A and B. These cash flows are summarized in the following table. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Project A $40,900 Project B $11,100* Initial investment Year Operating cash flows $10,100 12,800 13,700 15,100 10,900 After-tax cash inflow expected from liquidation. $6,900 6,900 6,900 6,900 6,900 a. Calculate the relevant cash flows for this replacement decision (Round to the nearest dollar.) Relevant Year Cash Flows Enter any number in the edit fields and then continue to the next question.

Explanation / Answer

a.

b. The answer is option "c" - an expansion project is simply a replacement decision in which all cash flows from the old assets are zero.

This helps in determing the relevant cash flows in case of expansion.

Year Relevant cash flows Formula 0 29,800.00 40900-11100 1 3,200.00 10100-6900 2 5,900.00 12800-6900 3 6,800.00 13700-6900 4 8,200.00 15100-6900 5 4,000.00 10900-6900

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.