Hello I need help with this two question. For questions 14 and 15, use the follo

Question

Hello I need help with this two question.

For questions 14 and 15, use the following scenario: 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:

Select a Choice Below

current question choices

A.System X, because it has the higher NPV, at about $895,000.

B.System Y, because it has the lower NPV, at about $872,000. ( is not the correct answer)

C.System X, because it has the lower NPV, at about $872,000.

D.System Y, because it has the higher NPV, at about $895,000. ( is not the correct answer)

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?

Select a Choice Below

current question choices

A.System X, because the net cash flow for System X will increase to $895,000. ( is not the correct answer)

B.System X, because the net cash flow for System X will increase to $852,000. ( is not the correct answer)

C.System Y, because the net cash flow for System X will decrease to $852,000.

D.System Y, because the net cash flow for System X will increase to $895,000.

Year System X System Y 0 -$900 -$1,500 1 $1,500 $800 2 $250 $900 3 $300 $1,200

Explanation / Answer

Year System X System Y Cash inflow PVIF @ 10% PV of Cash inflow Cash inflow PVIF @ 10% PV of Cash inflow 1 1500               0.9090                 1,364 800              0.9091                        727 2 250               0.8260                     207 900              0.8264                        744 3 300               0.7510                     225 1200              0.7512                        901 Total                 1,795                    2,372 (-) PV of cash outflow -900 -1500 NPV                     895                        872 14) A.System X, because it has the higher NPV, at about $895,000 15) Year System X System Y Cash inflow PVIF @ 12% PV of Cash inflow Cash inflow PVIF @ 10% PV of Cash inflow 1 1500               0.8930                 1,340 800              0.9091                        727 2 250               0.7970                     199 900              0.8264                        744 3 300               0.7120                     214 1200              0.7512                        901 Total                 1,752                    2,372 (-) PV of cash outflow -900 -1500 NPV                     852                        872 15) C.System Y, because the net cash flow for System X will decrease to $852,000

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