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 7% Option B Option A $177.000 Initial cost $268.000 Annual cash inflows $72.000 $81,700 Annual cash outflows $28,500 $25,600 Cost to rebuild (end of year 4) $51.000 $0 Salvage value $0 $7.400 Estimated useful life 7 years 7 years 3 NWP Assessment Player x BMAppendixG.indd 3 Videoplayer + al Accounting_9e/media/simulations/hidden/Wey_Fin_9e_pvtables.pdf 1 / 4 1 100% + @ 8% TABLE 1 Future Value of 1 (nt) Periods 4% 5% 0 1.00000 1.00000 1 1.04000 1.05000 2 1.08160 1.10250 3 1.12486 1.15763 4 1.16986 1.21551 5 1.21665 1.27628 6 1.26532 1.34010 7 1.31593 1.40710 8 1.36857 1.47746 9 1.42331 1.55133 10 1.48024 1.62889 11 1.53945 1.71034 12 1.60103 1.79586 13 1.66507 1.88565 14 1.73168 1.97993 15 1.80094 2.07893 16 1.87298 2.18287 17 1.94790 2.29202 18 2.02582 2.40662 19 2.10685 2.52695 2.19112 2.65330 6% 7% 9% 1.00000 1.00000 1.00000 1.00000 1.06000 1.07000 1.08000 1.09000 1.12360 1.14490 1.16640 1.18810 1.19102 1.22504 1.25971 1.29503 1.26248 1,31080 1.36049 1.41158 1.33823 1.40255 1.46933 1.53862 1.41852 1.50073 1.58687 1.67710 1.50363 1.60578 1.71382 1.82804 1.59385 1.71819 1.85093 1.99256 1.68948 1.83846 1.99900 2.17189 1.79085 1.96715 2.15892 2.36736 1.89830 2.10485 2.33164 2.58043 2.01220 2.25219 2.51817 2.81267 2.13293 2.40985 2.71962 3.06581 2.26090 2.57853 2.93719 3.34173 2.39656 2.75903 3.17217 3.64248 2.54035 2.95216 3.42594 3.97031 2.69277 3.15882 3.70002 4.32763 2.85434 3.37993 3.99602 4.71712 3.02560 3.61653 4.31570 5.14166 3.20714 3.86968 4.66096 5.60441 10% 11% 1.00000 1.00000 1.10000 1.1 1000 1.21000 1.23210 1.33100 1.36763 1.46410 1.51807 1.61051 1.68506 1.77156 1.87041 1.94872 2.07616 2.14359 2.30454 2.35795 2.55803 2.59374 2.83942 2.85312 3.15176 3.13843 3.49845 3.45227 3.88328 3.79750 4.31044 4.17725 4.78459 4.59497 5.31089 5.05447 5.89509 5.55992 6.54355 6.11591 7.26334 6.72750 8.06231 12% 1.00000 1.12000 1.25440 1.40493 1.57352 1.76234 1.97382 2.21068 2.47596 2.77308 3.10585 3.47855 3.89598 4.36349 4.88711 5.47357 6.13039 6.86604 7.68997 8.61276 9.64629 15% 1.00000 1.15000 1.32250 1.52088 1.74901 2.01136 2.31306 2.66002 3.05902 3.51788 4.04556 4.65239 5.35025 6.15279 7.07571 8.13706 9.35762 10.76126 12.37545 14.23177 16.36654 20 BLE 2 Future Value of an Annuity of 1 (in) ments 4% 5% 6% 7% 8% 9% 10% 11% 12% 15% 1 1.00000 1.00000 1.00000 1.0000 1.00000 1.00000 1.00000 1.00000 1.00000 1.0000 2 2.04000 2.05000 2.06000 2.0700 2.08000 2.09000 2.10000 2.11000 2.12000 2.1500 3 3.12160 3.15250 3.18360 3.2149 3.24640 3.27810 3.31000 3.34210 3.37440 3.4725 4 4.24646 4.31013 4.37462 4.4399 4.50611 4.57313 4.64100 4.70973 4.77933 4.9933 5,41632 5.52563 5.63709 5.7507 5.86660 5.98471 6.10510 6.22780 6.35285 6.7423 6 6.63298 6.80191 6.97532 7.1533 7.33592 7.52334 7.71561 7.91286 8.11519 8.7537 7 7.89829 8.14201 8.39384 8.6540 8.92280 9.20044 9.48717 9.78327 10.08901 11.0668 9.21423 9.54911 9.89747 10.2598 10.63663 11.02847 11.43589 11.85943 12.29969 13.726 9 10.58280 11.02656 11.49132 11.9780 12.48756 13.02104 13.57948 14.16397 14.77566 16.785 10 12.00611 12.57789 13.18079 13.8164 14.48656 15.19293 15.93743 16.72201 17.54874 20.3037 11 13.48635 14.20679 14.97164 15.7836 16.64549 17.56029 18.53117 19.56143 20.65458 24.3492 12 15.02581 15.91713 16.86994 17.8885 18.97713 20.14072 21.38428 22.71319 24.13313 29.001 13 16.62684 17.71298 18.88214 20.1406 21.49530 22.95339 24.52271 26.21164 28.02911 34.3515 14 18.29191 19.59863 21.01507 22.5505 24.21492 26.01919 27.97498 30.09492 32.39260 40.504 15 20.02359 21.57856 23.27597 25.1290 27.15211 29.36092 31.7724834,40536 37.27972 47.5804 16 21.82453 23.65749 25.67253 27.8881 30.32428 33.00340 35.94973 39.18995 42.75328 55.7172 17 23.69751 25.84037 28.21288 30.8402 33.75023 36.97351 40.54470 44.50084 48.88367 65.0750 18 25.64541 28.13238 30.90565 33.9990 37.45024 41.30134 45.59917 50.39593 55.74972 75.836 19 27.67123 30.53900 33.75999 37.3790 41.44626 46.01846 51.15909 56.93949 63.43968 88.2118 20 29.77808 33.06595 36.78559 40.9955 45.76196 51.16012 57.27500 64.20283 72.05244 102.443 BLE 3 Present Value of 1 (n) eriods 1 2 3 4 5 6 8 9 10 4% 96154 92456 88900 .85480 .82193 .79031 .75992 .73069 170259 .67556 64958 .62460 .60057 -57748 55526 53391 .51337 49363 47464 45639 5% .95238 90703 .86384 .82270 .78353 .74622 .71068 .67684 .64461 .61391 58468 .55684 53032 50507 .48102 45811 43630 .41552 .39573 37689 6% .94340 .89000 .83962 179209 .74726 .70496 .66506 -62741 .59190 .55839 .52679 .49697 .46884 44230 41727 -39365 .37136 .35034 33051 .31180 7% 0.93458 0.87344 0.81630 0.76290 0.71299 0.66634 0.62275 0.58201 0.54393 0.50835 0.47509 0.44401 0.41496 0.38782 0.36245 0.33873 0.31657 0.29586 0.27615 0.25842 8% .92593 .85734 .79383 .73503 .68058 .63017 -58349 -54027 50025 46319 .42888 39711 36770 34046 31524 29189 27027 25025 .23171 21455 9% 91743 .84168 .77218 .70843 -64993 .59627 54703 50187 46043 42241 38753 35554 32618 29925 27454 .25187 23107 21199 .19449 .17843 10% .90909 .82645 .75132 .68301 -62092 .56447 ,51316 46651 42410 38554 35049 31863 28966 .26333 23939 21763 .19785 .17986 .16351 .14864 11% 90090 .81162 .73119 65873 .59345 53464 .48166 .43393 39092 -35218 31728 28584 25751 23199 20900 .18829 .16963 .15282 .13768 12403 12% .89286 .79719 .71178 .63552 -56743 .50663 .45235 40388 36061 .32197 28748 25668 22917 20462 .18270 .16312 14564 .13004 .11611 .10367 15% .86957 .75614 .65752 .57175 .49718 ,43233 37594 32690 28426 24719 21494 .18691 .16253 .14133 .12289 .10687 .09293 .08081 07027 06110 11 12 13 14 15 16 17 18 19 20 TON Yalue of an Annuity of 1 BLE 4 Present Value of an Annuity of 1 (n) -yments 4% 5% 6% 7% 96154 95238 .94340 0.93458 2 1.88609 1.85941 1.83339 1.80802 3 2.77509 2.72325 2.67301 2.62432 4 3.62990 3.54595 3.46511 3.38721 4.45182 4.32948 4.21236 4.10020 6 5.24214 5.07569 4.91732 4.76654 7 6.00205 5.78637 5.58238 5.38929 8 6.73274 6.46321 6.20979 5.97130 7.43533 7.10782 6.80169 6,51523 10 8.11090 7.72173 7.36009 7.02358 11 8.76048 8.30641 7.88687 7.49867 12 9.38507 8.86325 8.38384 7.94269 13 9.98565 9.39357 8.85268 8.35765 14 10.56312 9.89864 9.29498 8.74547 15 11.11839 10.37966 9.71225 9.10791 16 11.65230 10.83777 10.10590 9.44665 17 12.16567 11.27407 10.47726 9.76322 18 12.65930 11.68959 10.82760 10.05909 19 13.13394 12.08532 11.15812 10.33560 20 13.59033 12.46221 11.46992 10.59401 8% 9% 10% 11% 12% 15% 92593 91743 .90909 .90090 .89286 .8699 1.78326 1.75911 1.73554 1.71252 1.69005 1.625 2.57710 2.53130 2.48685 2.44371 2.40183 2.2832 3.31213 3.23972 3.16986 3.10245 3.03735 2.8549 3.99271 3.88965 3.79079 3.69590 3.60478 3.352 4.62288 4.48592 4.35526 4.23054 4.11141 3.7844 5.20637 5,03295 4.86842 4.71220 4.56376 4.160 5.74664 5.53482 5.33493 5.14612 4.96764 4.487 6.24689 5.99525 5.75902 5.53705 5.32825 4.7713 6.71008 6.41766 6.14457 5.88923 5.650225.0181 7.13896 6.80519 6.49506 6.20652 5.93770 5.233 7.53608 7.16073 6.81369 6.49236 6.19437 5.4200 7.90378 7.48690 7.10336 6.74987 6,42355 5.583 8.24424 7.78615 7.36669 6.98187 6,62817 5.724 8.55948 8,06069 7.60608 7.19087 6,81086 5.847 8.85137 8.31256 7.82371 7.37916 6.97399 5.954 9.12164 8.54363 8,02155 7.54879 7.11963 6.047 9.37189 8.75563 8.20141 7.70162 7.24967 6.127 9.60360 8.95012 8.36492 7.83929 7.36578 6.198 9.81815 9.12855 8.51356 7.96333 7.46944 6.259 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 96 Option A $ % Option B $ e Textbook and Media