19:29 replacement decision, computing after-tax cash flows, basic NOV analysis

Okmulgee Hopsital (a large metroploitan for-profit hospital) is considering replacing its MRI equipment with a new model Manufactured by a different company. The old MRI equipment was acquired three years ago, has the remaining life of five years, and will have a salvage value of $100,000. The book value is $2,000,000 Straight-line depreciation with a half-year convention is being used for tax purposes. The cash operating cost of the existing MRI equipment total $1,000,000 per year.

The new MRI equipment has initial cost of $5 million and will have cash operating cost of $500,000 per year. The new MRI will have a life of five years and a salvage value of $1,000,000 at the end of the fifth year. MARCS depreciation will be used for tax purposes. If the new MRI equipment is purchased, the old one will be sold for $500,000. The company needs to decide whether to keep the old MRI equipment or buy the new one the cost of capital is 12%. The combined federal and state tax rate is 40%.

required: compute the NPV of each alternative. when required, round your computations and final answers to the nearest dollar. if the NPV is negative, enter your answer as a negative value.

old MRI equipment $_____________

new MRI equipment $_____________