Question
Alpha & Omega wants to invest in a new computer system, and management has narrowed the choice to Systems A and B. System A requires
Alpha & Omega wants to invest in a new computer system, and management has narrowed the choice to Systems A and B. System A requires an up-front cost of $100,000, after which it generates positive after-tax cash flows of $70,000 at the end of each of the next 2 years. The system could be replaced every 2 years, and the cash inflows and outflows would remain the same. System B also requires an up-front cost of $100,000, after which it would generate positive after-tax cash flows of $48,000 at the end of each of the next 3 years. System B can be replaced every 3 years, but each time the system is replaced, both the cash outflows and cash inflows would increase by 10%. The company needs a computer system for 6 years, after which the current owners plan to retire and liquidate the firm. The company's cost of capital is 14%. What is the NPV (on a 6-year extended basis) of System A? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.
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