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 company's cost of capital is 11%. Based on the equivalent annual annuity, which system will be chosen?
A) A,$1,622.88
B) B,$1,622.88
C) A,$7,083.47
D) B,$7,083.47

Question

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The Answer of 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 company's cost of capital is 11%. Based on the equivalent annual annuity, which system will be chosen?
A) A,$1,622.88
B) B,$1,622.88
C) A,$7,083.47
D) B,$7,083.47

Walker & Campsey Wants to Invest in a New Computer