Smith Services is considering the purchase of on 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 estimate of annual cash inflows for pessimistic, most likely, and optimistic results.
Determine the range of annual cash inflows for both computers.
Construct a table for the NPVs associated with each outcome for both computers.
Find the rang of NPVs and subjectively compare the risks associated with purchasing these computers.
The solution explains how to calculate the annual cash flow and determine the NPV