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 6%.

Option AOption BInitial cost$167,000$271,000Annual cash inflows$71,700$80,500Annual cash outflows$31,500$25,800Cost to rebuild (end of year 4)$50,200$0Salvage value$0$8,300Estimated useful life7 years7 years

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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 0 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.)

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 signicant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, out 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 6%. Dp'lion A Optlon B Initial cost $167,000 $271,000 Annual cash inows $71,?00 $80,500 Annual cash outflows $31,500 $25,800 Cost to rebuild (end of year 4] $50,200 $0 Salvage value $0 $8,300 Estimated useful life 2' years 2' years Click here to View W table. Compute the (1) net present value, (2) protability Index, and (3) internal rape 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 nut to 0 decimal places, e.g. 125 and round pmtablhf index to 2 decimal places, e.g. 12.50. For calculation purpose-s, use 5 decimal places as displayed in tile factor table provided.) l'let Present Value Pld'ltallllty Index ml Rate of Return MM s: D Em: ma 5;: C Si which option should be apcepted? I: | should be accepted