Question

Info from question 8 with the answer at the end. Please use for question 9.

8. 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%. What is the NPV (on a 6-year extended basis) of the system that adds the most value? System B 32711.91

9. Using the information from problem 8 on Walker & Campsey, what is the equivalent annual annuity (EAA) for System B? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

IN CALCULATING NPV, YOU HAVE NOT ADDED 5% TO OUTFLOW AND INFLOW FOR SYSTEM B. DO CHECK

I DID THIS SUM EARLIER, BUT AT THAT TIME, 5% INCREASE WAS NOT THERE