Faleye Consulting is deciding which of two computersystems to purchase. It can purchase state-of-the-art equipment (System A) for $21,000,which will generate cash flows of $6,000 at the end of each of the next 6 years. Alternatively,the company can spend $11,000 for equipment that can be used for 3 years and will generatecash flows of $6,000 at the end of each year (System B). If the company’s WACC is 10%and both “projects” can be repeated indefinitely, which system should be chosen, and whatis its EAA?
Faleye Consulting is deciding which of two computersystems to purchase. It can purchase state-of-the-art equipment (System A) for $21,000,which will generate cash flows of $6,000 at the end of each of the next 6 years. Alternatively,the company can spend $11,000 for equipment that can be used for 3 years and will generatecash flows of $6,000 at the end of each year (System B). If the company’s WACC is 10%and both “projects” can be repeated indefinitely, which system should be chosen, and whatis its EAA?
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 17EB: Caduceus Company is considering the purchase of a new piece of factory equipment that will cost...
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Faleye Consulting is deciding which of two computer
systems to purchase. It can purchase state-of-the-art equipment (System A) for $21,000,
which will generate cash flows of $6,000 at the end of each of the next 6 years. Alternatively,
the company can spend $11,000 for equipment that can be used for 3 years and will generate
cash flows of $6,000 at the end of each year (System B). If the company’s WACC is 10%
and both “projects” can be repeated indefinitely, which system should be chosen, and what
is its EAA?
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