A small private clinic is planning to purchase new equipment for a cost of $2,000,000. Additional costs associated with making the new equipment functional are estimated at $50,000. The useful life of the new equipment is estimated at 5 years and will have a real salvage (residual) value of $400,000 after these 5 years. The clinic plans to charge patients $400 for each treatment with the new machine. The direct cost associated with the use of the machine is estimated at $200 per treatment. The new equipment will have annual fixed costs of $70,000 and it is expected that the new equipment will be used for 2,000 individual treatments in year 1. It is estimated that the number of treatments will remain the same throughout these 5 years. The overall investment will also entail a further working capital cash flow investment of $200,000 for each one of years zero and one. The accounting department of the clinic follows straight line depreciation, the taxation rate is 25% and the cost of capital 10%.

Find the investments cash flows

Calculate the NPV and the payback period of the project