Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an ini

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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 company’s cost of
capital is 5%. Option A Option B Initial cost $170,000 $293,000
Annual cash inflows $70,200 $83,000 Annual cash outflows $30,700
$25,600 Cost to rebuild (end of year 4) $49,000 $0 Salvage value $0
$7,800 Estimated useful life 7 years 7 years Click here to view PV
table. (a) 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.)