Which system should be chosen

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Reference no: EM133982751

Problem I: Proj Risk Analysis

Parallon Business Solutions, a division of HCA that provides revenue cycle functions, is evaluating two different computer systems for handling provider claims. There are no incremental revenues attached to the projects, so the decision will be made on the basis of the present value of costs. Parallon's corporate cost of capital is 10 percent. Here are the net cash flow estimates in thousands of dollars:

Year	System X	System Y
0	-$1,300	-$1,100
1	$825	$750
2	$825	$750
3	$825	$750

i. Assume initially that the systems both have average risk. Which one should be chosen? Get the instant assignment help.

ii. Assume that System Y is judged to have high risk. Parallon accounts for differential risk by adjusting its corporate cost of capital up or down by 2 percentage points. Which system should be chosen?

Problem II: Proj Risk Analysis

Xenex Inc., a supplier of hospital room disinfection systems, has a cost of capital of 12 percent.

To fairly evaluate projects and adjust for risk, it adds or subtracts 2 percentage points to the discount rate.

Currently, two mutually exclusive projects are under consideration. Both have a cost of $200,000 and will last four years.

Neither project is projected to generate positive cash flows and thus both are evaluated on the basis of costs.

However, Project A is judged to be a riskier-than-average project but Project B is determined to a lower than average risk investment.

In which project should Xenex invest its capital?

Reference no: EM133982751

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