Question
A new diagnostic technology has an upfront cost of $1 million and $80K of annual maintenance. The technology has a useful life of 10 years
A new diagnostic technology has an upfront cost of $1 million and $80K of annual
maintenance. The technology has a useful life of 10 years with no resale value after it. For
this analysis use a discount rate of 4%.
The annual projected net income is $220K.
1. Show in a table the projected cash flows (outflows and inflows) over time.
2. What is the present value of all the outflows?
3. What is the present value of all the inflows?
4. What is the Net Present Value?
5. Perform a cost-benefit analysis by calculating the benefit/cost ratio.
6. What is your recommendation regarding buying or not buying this new diagnostic technology?
7. Would your recommendation change if the upfront cost were $1.2 million? Why?
8. Would your recommendation change if the discount rate were 7%? Why?
Hint: Use the excel file we created in session1.
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