A 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 8%.

Instructions
(a) Compute the
(1) Net present value
(2) Internal rate of return for each option.
(b) Which option should beaccepted?

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Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life ion A $160,000 $71,000 $30,000 $50,000 $0 7 years Option B $227,000 $80,000 $31,000 $0 $8,000 7 years