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Category > Business & Finance Posted 30 May 2017 My Price 11.00

Brooks Clinic is considering investing in new heart-

Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The companyAc€?cs cost of capital is 5%.

    Option A   Option B  
Initial cost   $196,000   $291,000  
Annual cash inflows   $72,500   $82,500  
Annual cash outflows   $28,000   $25,600  
Cost to rebuild (end of year 4)   $49,100   $0  
Salvage value   $0   $8,500  
Estimated useful life   7 years  

7 years
  Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to 0 decimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
               
     
 

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Status NEW Posted 30 May 2017 04:05 AM My Price 11.00

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