Question: The Bobcat Clinic is evaluating two different linen clearning vendors. One is more labor intensive. The other requires up front capital expenditure of technology and

The Bobcat Clinic is evaluating two different linen clearning vendors. One is more labor intensive. The other requires up front capital expenditure of technology and then will require lower labor expense over time. There are no incremental revenues attached to the projects, so the decision will be made on the basis of the present value of costs. Bobcat's corporate cost of capital is 10 percent. Here are the net cash flow estimates in thousands of dollars:

Year	System X (Labor)	System Y (Equipment)
0	-$750	-$1,400
1	-$750	-$500
2	-$750	-$500
3	-$750	-$500
4	-$750	-$500
5	-$750	-$500

Assume initially that the systems both have average risk. Which one should be chosen? Format is "X" or "Y".

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

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