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 companys cost of capital is 6%.

	Option A	Option B
Initial Cost	$170,000	$274,000
Annual Cash InFlows	$72,200	$82,200
Annual Cash OutFlows	$31,400	$26,700
Cost to Rebuild (end of 4 years)	$50,100	$0
Salvage Value	$0	$8,200
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 $			%
Option B $			%

Which option should be accepted?

Option A or Option B should be accepted?