The AHS system is evaluating two different computer systems for handling provider claims. There are no incremental revenues attached to the projects, so the decision will be made on the basis of the present value of costs. AHS's corporate cost of capital is 10%. Here are the net cash flow estimates in thousands of dollars:
|
Year
|
System X
|
System Y
|
|
0
|
-$900
|
-$1500
|
|
1
|
$1,500
|
$800
|
|
2
|
$250
|
$900
|
|
3
|
$300
|
$1,200
|
Assume that System X is judged to have high risk. AHS accounts for differential risk by adjusting its corporate cost of capital by 2 percentage points. Which system should be chosen?