Question
In: Finance
Q1.Walker & Campsey wants to invest in a new computer system, and management has narrowed the...
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? Enter your answer rounded to two decimal places.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Walker & Campsey wants to invest in a new computer system, and management has narrowed the...
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...
Walker & Campsey wants to invest in a new computer system, and management has narrowed the...
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...
Walker & Campsey wants to invest in a new computer system, and management has narrowed the...
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...
Walker & Campsey wants to invest in a new computer system, and management has narrowed the...
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...
1. a) Walker & Campsey wants to invest in a new computer system, and management has...
1. a) 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...
Q1. Alpha & Omega wants to invest in a new computer system, and management has narrowed...
Q1.
Alpha & Omega 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 $70,000 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 $100,000, after which...
Alpha & Omega wants to invest in a new computer system, and management has narrowed the...
Alpha & Omega 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 $70,000 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 $100,000, after which
it...
Alpha & Omega wants to invest in a new computer system, and management has narrowed the...
Alpha & Omega 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 $70,000 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 $100,000, after which
it...
Alpha & Omega wants to invest in a new computer system, and management has narrowed the...
Alpha & Omega 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 $70,000 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 $100,000, after which it...
A company wants to buy a new management information system. The cost of the system is...
A company wants to buy a new management information system. The
cost of the system is $10 million, with an additional $1,000,000
for delivery/installation. Immediate net working capital of
$500,000 and an additional net working capital investment of
$250,000 at the end of year one. The system has a life of 10 years.
It will be depreciated as a 7-year asset under MACRS rules. Salvage
value is $1,000,000 at end of 10 years. Tax rate is 24 percent.
Rate of...
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