Q1. Walker & Campsey 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 $125,000, after which it generates positive after-tax cash flows of $80,000 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 $125,000, after which it would generate positive after-tax cash flows of $60,000 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 5%.

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 12%.

A. What is the NPV (on a 6-year extended basis) of the system that adds the most value?

B. What is the equivalent annual annuity (EAA) for System A?

Q2. Bing Services is now in the final year of a project.The equipment originally cost $20,000, of which 88% has been depreciated.Bing can sell the used equipment today for $7,500, and its tax rate is 25%.What is the equipment's net after-tax salvage value for use in a capital budgeting analysis?

Q3. A project's base case or most likely NPV is $44,000, and assume its probability of occurrence is 50%. Assume the best case scenario NPV is 85% higher than the base case and assume the worst scenario NPV is 35% lower than the base case.Both the best case scenario and the worst case scenario have a 25% probability of occurrence.Find the project's coefficient of variation.