Covington Pharmacies has decided to automate its insurance claims process. Two networked computer systems are being considered. The systems have an expected life of two years. The net cash flows associated with the systems are as follows. The cash benefits represent the savings created by switching from a manual to an automated system.

Year System1 System 2

0 $(120,000) $(120,000)

1 - $76,628

2 $162,708 $76,628

The company's cost of capital is 10 percent.

Required: Please show your work.

1. Copute the NPV and IRR for each investment.

2. Show that the project with the larger NPV is the correct choice for the company.