•Mutually exclusive projects: Different lives same risk
Use NPV-assumes replacement projects have zero
•Incremental nominal cash flows with empirically measured discount rate
•Components of cash flow
Investment in fixed assets, salvage value
Investment in working capital, release
Operating revenues/expenses
NO INTEREST
NPV. OK for projects with long lives
Use NPV-with specific replacements that make project with comparable lives
Use replacement chain or EAC
Care: Use only real cash flows for EAC