Corcoran consulting is deciding which of two computer systems to purchase. The firm can purchase...
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Corcoran consulting is deciding which of two computer systems to purchase. The firm can purchase state-of-the-art equipment (System A) for $500,000, which will generate cash flows of $300,000 at the end of each year for the next 2 years. Alternatively, the company can spend $500,000 for equipment that can be used for 4 years and will generate cash flows of $165,000 at the end of each year (System B). The company's WACC is 10%. Both projects can be repeated indefinitely. Based on this information, determine which system should the company choose and calculate the system's EAA (equivalent annual annuity).
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