Walton Insurance Company has decided to automate its claims process. Two PC computer systems are being considered. The systems have an expected life of 2 years. The after-tax cash flows associated with the systems are shown below. The cash benefits represent the savings created by switching from a manual to an automated system.

The company's cost of capital is 10%.
Required:
1. Compute the NPV and the IRR for each investment.
2. Show that the project with the larger NPV is the correct choice for the company.

Transcribed Image Text:

Year System 1 System II 012 $(200,000) $(200,000) 127,714 271,180 127,714