Topping Medical Center, a for-profit institution, wants to replace its film-based mammography equipment with new digital models. The cost of the new digital models is $3,500,000.

The current models were purchased three years ago for $1,400,000. The new digital models have a five-year life and will be depreciated on a straight-line basis to a salvage value of $600,000. The current models have five years remaining on their useful lives and will be depreciated on a straight-line basis to a salvage value of $400,000. The current models could be sold in the marketplace for $1,200,000. The new models are expected to generate annual cash cost savings on film of $400,000 per year relative to the current models. Neither system will change patient revenues. The imaging center has a 40 percent tax rate and required rate of return of 5 percent. The financial analysis will be projected over a five-year period. Use the NPV approach to determine if the new digital model should be selected. (Hint: see Appendix F.)