Question
A private healthcare clinic is considering the purchase of equipment that will cost $150,000. They expect after-tax cash inflows of $45,000 annually generated directly from
A private healthcare clinic is considering the purchase of equipment that will cost $150,000. They expect after-tax cash inflows of $45,000 annually generated directly from the equipment, but they also expect that new patients it draws in will spend an additional $10,000 (after-tax) each year on other services offered by the clinic. At the end of four years, the equipment will need to be scrapped at no cost. All cash inflow occurs at the end of the year. Assume that the discount rate (r) is 10 percent. a) What is the project's PI? Should it be accepted? (6 marks) b) What if the cashflows changed so that the PI = 1. What would the NPV of the project be?
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