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Category > Management Posted 08 Jan 2018 My Price 8.00

Spiro Hospital

Exercise 14-30  Net Present Value and Competing Projects

Spiro Hospital is investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the  equipment. After-tax cash inflows for the two competing projects are as follows:

 

Year

Puro Equipment

Briggs Equipment

1

$320,000

$120,000

2

280,000

120,000

3

240,000

320,000

4

160,000

400,000

5

120,000

440,000

Both projects require an initial investment of $560,000. In both cases, assume that the equipment has a life of 5 years with no salvage value.

Required:

1.       Assuming a discount rate of 12%, compute the net present value of each piece of equipment.

2.       A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $560,000, but this equipment will produce even cash flows over its 5-year life. What must the annual cash flow be for this equipment to be selected over the other two? Assume a 12% discount rate.

 

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Maurice Tutor
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Status NEW Posted 08 Jan 2018 03:01 PM My Price 8.00

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