Corcoran Consulting is deciding which of two computer systems to purchase. It ca
ID: 2699853 • Letter: C
Question
Corcoran 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 $5,000 at the end of each of the next 6 years. Alternatively, the company can spend $10,000 for equipment that can be used for 3 years and will generate cash flows of $5,000 at the end of each year (System B).
a. If the company's WACC is 10% and both projects can be repeated indefinitely, which system should be chosen?
System -Select-ABItem 1 should be chosen.
b. What is its EAA? Round your answer to the nearest cent.
Explanation / Answer
System B should be chosen..
EAA for B= $552.53
EAA for A= $230.22