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Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a
Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 5% option A option B Initial cost $169,000 $291,000 ual cash inflows $70,400 $82,500 Annual cash outflows $31,000 $25,400 Cost to rebuild nd of year 4 $48,600 $0 Salvage value $0 $7,200 ted 7 years 7 years
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