Covington Pharmacies has decided to automate its insurance claims process. Two networked computer systems are being considered. The systems have an expected life of two years. The net cash flows associated with the systems are as follows. The cash benefits represent the savings created by switching from a manual to an automated system. The company’s cost of capital is 10 percent. Required: 1. Compute the NPV and the IRR for each investment. 2. Show that the project with the larger NPV is the correct choice for the company.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
BuyFind

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

Solutions

Chapter 19, Problem 16E
Textbook Problem

Covington Pharmacies has decided to automate its insurance claims process. Two networked computer systems are being considered. The systems have an expected life of two years. The net cash flows associated with the systems are as follows. The cash benefits represent the savings created by switching from a manual to an automated system.

Chapter 19, Problem 16E, Covington Pharmacies has decided to automate its insurance claims process. Two networked computer

The company’s cost of capital is 10 percent.

Required:

  1. 1. Compute the NPV and the IRR for each investment.
  2. 2. Show that the project with the larger NPV is the correct choice for the company.

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Chapter 19 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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