Explaining cash inflows and outflows


1) Doherty Industries wishes to invest in the new computer system. Company only wishes to invest in one system, and has narrowed choice down to System A and System B.

System A needs the up-front cost of= $100,000 and then creates positive after-tax cash flows of= $60,000 at the end of each of next 2 years. System can be replaced every two years with cash inflows and outflows remaining same.

System B also needs an up-front cost of= $100,000 and then creates positive after-tax cash flows of= $48,000 at ending of each of next three years. System B can be replaced every 3 years, but each time system is replaced, both cash inflows and outflows rise by 10%.

Company requires a computer system for the 6 years, after which time the current owners plan on retiring and liquidating firm. The company's cost of capital is 11%. Find out NPV (on a six-year extended basis) of system that creates most value to company?

Requirements
Min Pages: 1

Request for Solution File

Ask an Expert for Answer!!
Finance Basics: Explaining cash inflows and outflows
Reference No:- TGS015359

Expected delivery within 24 Hours