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Corcoran consulting is deciding which of two computer systems to purchase. The firm can purchase state-of-the-art equipment (System A) for $518,000, which will generate
Corcoran consulting is deciding which of two computer systems to purchase. The firm can purchase state-of-the-art equipment (System A) for $518,000, which will generate cash flows of $310,000 at the end of each year for the next 2 years. Alternatively, the company can spend $507,000 for equipment that can be used for 4 years and will generate cash flows of $175,000 at the end of each year (System B). The company's WACC is 10%. Both projects can be repeated Indefinitely. Based on this information, determine which system should the company choose and calculate the system's EAA (equivalent annual annuity). Choose project A. The EAA is $11,904.76. Choose project A. The EAA is $11,719.05. Choose project B. The EAA is $15,056.30. Choose project B. The EAA is $18,952.15. Choose project B. The EAA is $22,848.01.
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