Question

Faleye Consulting is deciding which of two computer systems to purchase. It can purchase state-of-the-art equipment (System A) for $20,000, which will generate cash flows of $7,000 at the end of each of the next 6 years. Alternatively, the company can spend $14,000 for equipment that can be used for 3 years and will generate cash flows of $7,000 at the end of each year (System B). If the company’s WACC is 5% and both “projects” can be repeated indefinitely, which system should be chosen, and what is its EAA? Do not round intermediate calculations. Round your answer to the nearest cent.

Choose Project , whose EAA = $

Answer 1

A C D Е F G Н 1 2 System A 4 5 Yr 2 3 5 б 6 CF -20000.00 7000.00 7000.00 7000.00 7000.00 7000.00 7000.00 7 15529.84 NPV(0.03,E6:J6) +D6 NPV 9 3059.65 -PMT(0.05,6, D8,, ) 10 EAA 11 12 System B 13 14 15 Yr 0 1 2 16 CF -14000.00 7000.00 7000.00 7000.00 17 5062.74 NPV(0.05, E16:G16) +D16 NPV 18 19 1859.08PMT(0.05,3, D18, ) 20 EAA 21 Since EAA of System A is higher, so System A should be chosen 22 23 LO st CO co