Expected Net Cash Flow
Year Project S1project L
0 ($400,000) ($400,000)
1 240,000 134,000
2 240,000 134,000
3 - 134,000
4 - 134,000
The cost of capital is 10%. Assume that the cost to replicate Project S in 2 years is estimated to be $420,000 because of inflationary pressures. Similar investment cost increases will occur for both projects in Year 4 and beyond. How would this affect the analysis? Which project should be chosen under this assumption?