The equivalent annual annuity for Project S is $2,380.95 and $1,952.92 for Project L. IF these projects are mutually exclusive, project S should be accepted because its equivalent annual rent is higher than that of project L. 3. When the replacement chain approach is used, project S should be chosen because its NPV is higher.4. In this scenario, project L should be chosen because its NPV is greater than that of project L. The $105,000 is included in the cash flow for year 2.l. If operated for 3 full years, the NPV of this project is -$123.22. The NPV for a 2-year termination is $214.88 and -$272.73 for a termination at the end of year 1. The project must be used for 2 years and then terminated after two years, which which corresponds to its economic lifespan. One problem that could arise is lack of capital. A lack of capital means that fewer projects can be pursued unless more capital is raised. If more capital is raised, the cost of capital will also increase, leading to a change in the acceptability of certain projects. The second problem that could arise is that of capital rationing. The investment budget may be limited due to refusal to give up equity or lack of qualified personnel.