1. Reynolds Leasing is a company that purchases equipment and then leases the equipment to hospitals. The leaders of Reynolds Leasing are trying to decide which equipment to purchase next, a new model of diagnostic equipment that costs $30,000 or a new model of imaging equipment that costs $39,000. Although the imaging equipment is more expensive, Reynolds believes that a hospital would pay higher lease payments for the imaging equipment, compared to the diagnostic equipment. The expected cash flow for each machine is shown below, under the assumption that either machine would be leased for 3 years. The cash flows are based on the purchasing prices of the machines, the expected lease payments that Reynolds would receive from a hospital, the maintenance costs and all other associated costs, and depreciation issues: Year Year 0 Year 1 Year 2 Year 3 Diagnostic Equipment ($30,000) $11,800 $11,800 $11,800 Imaging Equipment ($39,000) $15,200 $15,200 $15,200 a) Given the cash flows in the above table and Reynolds' belief that its current corporate cost of capital for average-risk projects is 7%, the Net Present Value (NPV) of the diagnostic equipment is $967 and the NPV of the imaging equipment is $890. If Reynolds can only purchase and lease one of these 2 pieces of equipment, they should choose to purchase and lease the (diagnostic/imaging) equipment. b) After speaking with a project manager, Reynolds determines that the imaging equipment is very safe and has below-average financial risk. Also, they determine that investing in the diagnostic equipment is an above-average risk project. Reynolds accounts for differential risk by adjusting its corporate cost of capital up or down by 1 percentage point. Now, the appropriate interest rate to use to find the NPV for the diagnostic equipment is %, and the appropriate interest rate to use to find the NPV for the imaging equipment %. is c) Find the new NPV of each project with the risk-adjusted interest rates: NPV of Diagnostic equipment: $ NPV of Imaging Equipment: _$ d) After adjusting for risk, if Reynolds can only purchase and lease one of these 2 pieces of equipment, based on these NPV values, Reynolds should purchase the (diagnostic/imaging) equipment. 2. The manager of a corporate office building wishes to hire a window washing company to wash the outside of the many windows on the office building. The manager would like to form a long-term contract with the window washing company, so they can determine future