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Hillsdale is considering two options for comparable computer software. Option A will cost $25,000 plus annual license renewals of $1,000 for three years, which includes technical support. Option B will cost $20,000 with technical support being an add-on charge The estimated cost of technical support is $4,000 the first year, $3,000 the second year, and $2,000 the third year. Assume the software is purchased and paid for at the beginning of year one, but that technical support is paid for at the end of each year. The discount rate is 8%. Ignore income taxes. a. Calculate the present value of net cash flows. (FV of $1. PV of $1. EVA of $1, and PVA of $1). (Use appropriate factor(s) from the tables provided. Round final answer to the nearest whole dollar.) Option A Option B Present value b. Determine which option should be chosen based on present value considerations. Option B O Option A

Hillsdale is considering two options for comparable computer software. Option A will cost $25,000 plus annual license renewals of $1,000 for three years, which includes technical support. Option B will cost $20,000 with technical support being an add-on charge The estimated cost of technical support is $4,000 the first year, $3,000 the second year, and $2,000 the third year. Assume the software is purchased and paid for at the beginning of year one, but that technical support is paid for at the end of each year. The discount rate is 8%. Ignore income taxes. a. Calculate the present value of net cash flows. (FV of $1. PV of $1. EVA of $1, and PVA of $1). (Use appropriate factor(s) from the tables provided. Round final answer to the nearest whole dollar.) Option A Option B Present value b. Determine which option should be chosen based on present value considerations. Option B O Option A

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Hillsdale is considering two options for comparable computer software Option A will cost $25,000 plus annual license renewals of $1,000 for three years, which includes technical support. Option B will cost $20,000 with technical support being an add-on charge. The estimated cost of technical support is $4,000 the first year, $3,000 the second year, and $2,000 the third year. Assume the software is purchased and paid for at the beginning of year one, but that technical support is paid for at the end of each year. The discount rate is 8%. Ignore income taxes. a. Calculate the present value of net cash flows. (EV of $1. PV of $1. EVA of $1, and PVA of $1). (Use appropriate factor(s) from the tables provided. Round final answer to the nearest whole dollar.) Option A Option B Present value b. Determine which option should be chosen based on present value considerations. Option B Option A
Transcribed Image Text:Hillsdale is considering two options for comparable computer software Option A will cost $25,000 plus annual license renewals of $1,000 for three years, which includes technical support. Option B will cost $20,000 with technical support being an add-on charge. The estimated cost of technical support is $4,000 the first year, $3,000 the second year, and $2,000 the third year. Assume the software is purchased and paid for at the beginning of year one, but that technical support is paid for at the end of each year. The discount rate is 8%. Ignore income taxes. a. Calculate the present value of net cash flows. (EV of $1. PV of $1. EVA of $1, and PVA of $1). (Use appropriate factor(s) from the tables provided. Round final answer to the nearest whole dollar.) Option A Option B Present value b. Determine which option should be chosen based on present value considerations. Option B Option A
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