15 E Question 8 Of 8 Brooks Clinic Is Considering Investing In New Heart Monitoring Equipment It Has Two Options 1 (24.17 KiB) Viewed 12 times
15 E Question 8 Of 8 Brooks Clinic Is Considering Investing In New Heart Monitoring Equipment It Has Two Options 2 (28.64 KiB) Viewed 12 times
*** -15 E Question 8 of 8 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 $183,000 $281,000 Annual cash inflows $70,000 $80,000 Annual cash outflows $28,000 $25,000 Cost to rebuild (end of year 4) $48,000 SO Salvage value $0 $7,000 Estimated useful life 7 years 7 years Click here to view PV table (a) Question 8 of 8 < -/5 = (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.) Net Present Value Profitability Index Internal Rate of Return Option A $ Option B $ eTextbook and Media Save for Later % % Attempts: 0 of 3 used Submit Answer
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