Fenwick Consulting is comparing two computer systems with the intention to purchase one or the...
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Fenwick Consulting is comparing two computer systems with the intention to purchase one or the other. System A costs $28,000 and will generate after-tax cash flows of $8,000 per year for each of the next 7 years. System B costs $14,000 and will generate after-tax cash flows of $8,000 per year for each of the next 5 years. If the company's WACC is 9% and both "projects" can be repeated indefinitely, which system should be chosen? Hint: Use the EAA method discussed on page 437 in the green box to decide.
System A because its equivalent annual annuity is $2,437 while System B's is only $2,245
System A because its equivalent annual annuity is $2,437 while System B's is only $1,921
System B because its equivalent annual annuity is $2,245 while System A's is only $1,921
System B because its equivalent annual annuity is $4,401 while System A's is only $1,500
System B because its equivalent annual annuity is $4,401 while System A's is only $2,437
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