Question
Walker & Campsey wants to invest in a new computer system, and management has narrowed the choice to Systems A and B. System A requires
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 $100,000, after which it generates positive after-tax cash flows of $60,000 at the end of each of the next two years. System B also requires an up-front cost of $100,000, after which it generates positive after-tax cash flows of $48,000 at the end of each of the next three years. The companys cost of capital is 11%. Based on the equivalent annual annuity, which system will be chosen? a. A for $1,622.88 b. B for $1,622.88 c. B for $7,083.47 d. A for $7,083.47
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