1. a) Walker & Campsey wants to invest in a new computersystem, and management has narrowed the choice to Systems A and B.System A requires an up-front cost of $125,000, after which itgenerates positive after-tax cash flows of $80,000 at the end ofeach of the next 2 years. The system could be replaced every 2years, and the cash inflows and outflows would remain the same.

System B also requires an up-front cost of $125,000, after whichit would generate positive after-tax cash flows of $60,000 at theend of each of the next 3 years. System B can be replaced every 3years, but each time the system is replaced, both the cash outflowsand cash inflows would increase by 5%.

The company needs a computer system for 6 years, after which thecurrent owners plan to retire and liquidate the firm. The company'scost of capital is 12%. What is the NPV (on a 6-year extendedbasis) of the system that adds the most value?

1. b) Using the information from problem 8 on Walker &Campsey, what is the equivalent annual annuity (EAA) for System B?Enter your answer rounded to two decimal places.

2) A project's base case or most likely NPV is $44,000, andassume its probability of occurrence is 50%. Assume the best casescenario NPV is 55% higher than the base case and assume the worstscenario NPV is 35% lower than the base case. Both the best casescenario and the worst case scenario have a 25% probability ofoccurrence. Find the project's coefficient of variation.

3)Anderson Associates is considering two mutually exclusiveprojects that have the following cash flows:

Year	Project A Cash Flow	Project B Cash Flow
0	-$11,000	-$9,000
1	3,500	6,000
2	3,000	4,000
3	5,000	3,000
4	9,000	2,000

At what cost of capital do the two projects have the same netpresent value?