Author Question: Walker & Campsey wants to invest in a new computer system, and management has narrowed the choice to ... (Read 11 times)

petersan · **on:** Aug 7, 2023

Question 1

Van Auken Inc. is considering a project that has the following cash flows:

Year		Cash Flow
0		–$1,000
1		$500
2		$200
3		$400
4		$400

The company’s WACC is 10%. What are the project’s payback, IRR, and NPV?

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payback = 2.25, IRR = 18.91%, NPV = $169

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payback = 2.25, IRR = 19.50%, NPV = $183

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payback = 2.75, IRR = 18.91%, NPV = $169

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payback = 2.75, IRR = 19.50%, NPV = $183

Question 2

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 $120,000, after which it generates positive after-tax cash flows of $80,000 at the end of each of the next 2 years. System B also requires an up-front cost of $120,000, after which it generates positive after-tax cash flows of $58,000 at the end of each of the next 3 years. The company’s cost of capital is 12%. Based on the equivalent annual annuity, which system will be chosen?

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A for $8,038.03

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B for $8,038.03

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A for $8,996.18

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B for $8,996.18

lactosetheintolerant · **Reply #1 on:** Aug 7, 2023

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