Colorado Clinic is considering investing in new heart-monitoring equipment. It has two options: Option A would have

Question:

Colorado 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 is 8%.

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

Net Present Value
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