James Secretarial Services is considering the purchase of one of two new personal computers, P...
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James Secretarial Services is considering the purchase of one of two new personal computers, P and Q. Both are expected to provide benefits over a 10-year period, and each has a required investment of $3,000. The firm uses a 10% cost of capital. Management has constructed the following table of estimates of annual cash inflows for pessimistic, most likely, and optimistic results. Computer P Computer Q Initial investment (CF0) $3,000 $3,000 Outcome Annual cash inflows (CF) Pessimistic $ 500 $ 400 Most likely 750 750 Optimistic 1,000 1,200 a. Determine the range of annual cash inflows for each of the two computers. b. Find NPVs associated with each outcome for both computers. Show formula c. Find the range of NPVs, and subjectively compare the risks associated with purchasing these computers.
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You can see the logs in the Dashboard.