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Suppose the Property & Casualty Insurance Company (P&C) is contemplating the purchase of one of the two database and file management software systems offered by Rockford Files, Inc. System A is specifically designed for P&C's current computer software system and cannot be used with those of other providers; system B is compatible with a broad variety of computer software systems, including P&C's and those of other software providers. The expected investment outlay is $500,000 for each alternative. Expected annual cost savings (cash inflows) over 5 years are $175,000 per year for system A and $185,000 per year for system B. The standard deviation of expected annual returns from system A is $10,000, whereas that of system B is $15,000. In view of this risk differential as measured by the standard deviation of expected annual returns, P&C management has decided to evaluate system A with a 10 per cent cost of capital and system B with a 15 per cent cost of capital. Which system should P&C adopt and why?