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 BI

nitial cost $193,000 $288,000

Annual cash inflows $72,700 $81,800

Annual cash outflows $ 28,400 $25,400

Cost to rebuild (end of year 4 ) $51,500 $0

Salvage value $0 $7,000

Estimated useful life 7 years 7 years

(a)

Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint:To solve for internal rate of return, experiment with alternative discount rates to arrive at a net present value of zero.)

Net Present Value Profitability IndexInternal Rate of Return

Option A $ %

Option B $ %

It has two options Option Aw X + en.wileyplus.com/edugen/student/mainfr.uni YouTube CALCULATOR|FULL SCREEN PRINTER VERSION HACK NEXT Problem 27-03A (Part Level Submission) 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 $193,000 $288,000 Annual cash Inflows $72,700 $81/800 Annual cash outflows $28,400 $25,400 Cost to rebuild (end of year 4) $51,500 $0 Salvage value $0 $7,000 Estimated useful life 7 years 7 years Click here to view PV table. (a) Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount rates to arrive at a net present value of zero.) ( If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to O decimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net Present Value Profitability Index Internal Rate of Return Option A /% Option B Version 4.24.17:5 v Policy | 2000-2019 john Wiley & Sons, Inc. All Rights Reserved. A Division of John Wiley & Sons, Inc. 38'C CPUSHE S 2:59 9 70% 2019/12/27