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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

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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 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% machine is of Option A Option B $179,000 Initial cost $283,000 Annual cash inflows $81,100 $71,700 Annual cash outflows $30,200 $25,800 Cost to rebuild (end of year 4) $0 $50,700 Salvage value $0 $7,900 Estimated useful life 7 years 7 years Click here to view PV table. Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each optlon. (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.) Internal Rate of Return Net Present Value Profitability Index Option A 0% S Option B

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