Foster Airlines is considering two different computer systems: the Standard System and the Custom Travel System. The projected annual revenues, annual costs, capital outlays, and project life for each system (in after-tax cash flows) are as follows:

	Standard System	Custom Travel
Annual revenues	$540,000	$675,000
Annual operating costs	270,000	360,000
System investment	810,000	945,000
Project life	5 years	5 years

Assume that the required rate of return for the company is 12 percent.

Required:

1. Calculate the NPV for each of the two systems (round discount factor to five decimal places and present values to the nearest dollar):

NPV (Standard System) =____ $

NPV (Custom Travel) = _____$

The NPV calculations imply that the ____ system would be chosen because it has the_______ NPV.

2. Calculate the discount factor associated with the IRR for each project (round calculated discount factor to five decimal places):

Discount factor for Standard System = ______

Discount factor for Custom Travel System = ______

Thus, given the discount factors and using the table for the present value of an annuity, we can say that the IRR for each project is between______% and_____% (round to nearest percent).

Furthermore, the discount factors imply that the IRR for the Custom Travel System is_____ the IRR for the Standard System. Thus, the IRR signals that the economic benefit of the Custom Travel System is_______ the Standard System. Yet, the economic benefit of the Custom Travel System is_______ the Standard System because it has the _______ NPV and thus, _________ firm value more.