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 company’s cost of
capital is 5%.
- Blossom Clinic Is Considering Investing In New Heart Monitoring Equipment It Has Two Options Option A Would Have An In 1 (174.84 KiB) Viewed 49 times
(a) X Your answer is incorrect. 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. 12.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net Present Value Profitability Index Internal Rate of Returr Option A $ -$35,000 1.29 5. Option B $ -$25,000 1.60 5. e Textbook and Media Save for Later Attempts: 1 of 3 used Submit Answer