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 $285,000 Initial cost $189,000 Annual cash inflows $71,600 $82,500 $28,200 $26,700 Annual cash outflows Cost to rebuild (end of year 4) $50,100 $0 $0 $8,100 Salvage value Estimated useful life 7 years 7 years 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.) Net Present Value Profitability Index Internal Rate of Return Option A 20 911 1.11 E Option B Which option should be accepted? Options Choose your answer here should be accepted. Cabas Corp. Is thinking about opening a soccer camp in southern California. To start the camp, Collywould need to purchase and and boil forsker fet and a sleeping and dining facility to house 150 players. Each year, the camp would be run form of 1 weck each. The company would recoge soccer players coaches. The camp attendees would be male and female sexe players as 12-1. Property values in southern Califors have a steady increase svake It is expected that after using the facility for 20 years, case the property for more than it was originally purchased for. The following amounts have been estimated $324,000 Cost of land $648.000 $993,600 Cost to build soccer fields, dorm and dining facility Annual cash inflows assuming 150 players and 8 weeks Annual cash outflows Estimated useful life $907,200 20 years Salvage value $1,620,000 Discount rate 85 (1) Calculate the net present value of the project. (if the net present value is negative, use either a negative sign preceding the number e.g. -45 or parenthesese.9. (45). Round answer to decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value SType your answer here Should the project be accepted? (2) To gauge the sensitivity of the project to these estimates, assume that if only 125 players attend each week, annual cash inflows will be $869.400 and annual cash outflows will be $810,000. What is the net present value using these alternative estimates? (f the net present value is negative, use either a negative in preceding the number e.g. -45 or parentheses e.9. (45). Round answer to decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) SType your answer here Should the project be accepted? H) the original facts, what is the net present value of the project is actually riskier than fest assumed and a 10% discount is more appropriate the nel present value is negative, use either a negative sin preceding the number eg. ser parentheses 14). Round answer to decimal places, eg. 125. Forcallation purposes, we decimal places as displayed in the factor table provided) Net presenta should the project become 14) Asume that ong the first years, the cash flows each year were only 543,200. At the end of the finch year, the company owoch, so management decides to the property for 51,433.560. What was the actual internal rate of turn on the project found to decimale - II. For calculation purpose we decimal placeres hplayed in the factor de provided)
