calculate net present value, profitbliltiy index, internal Rate of Return for option A and B

Cullumber 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 TABLE 1 (n) Periods 0 2 4 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TABLE 3 (n) Periods 2 4 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Future Value of 1 TA BL E 2 Future Value of an Annuity of 1 company's cost of capital is 5%. Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Option A $170,000 $70,200 $30,700 $49,000 $0 7 years Option B $293,000 $83,000 $25,600 $0 $7,800 7 years :ompute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal ate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is egative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to O 'ecimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places as 'isplayed in the factor table provided.) 4% 1.00000 1.04000 1.08160 1.12486 1.16986 1.21665 1.26532 1.31593 1.36857 1.42331 1.48024 1.53945 1.60103 1.66507 1.73168 1.80094 1.87298 1.94790 2.02582 2.10685 2.19112 1.00000 1.05000 1.10250 1.15763 1.21551 1.27628 1.34010 1.40710 1.47746 1.55133 1.62889 1.71034 1.79586 1.88565 1.97993 2.07893 2.18287 2.29202 2.40662 2.52695 2.65330 1.00000 1.06000 1.12360 1.19102 1.26248 1.33823 1.41852 1.50363 1.59385 1.68948 1.79085 1.89830 2.01220 2.13293 2.26090 2.39656 2.54035 2.69277 2.85434 3.02560 3.20714 .94340 .89000 .83962 .79209 34726 .70496 .66506 .62741 .59190 .55839 .52679 .49697 .46884 .44230 .41727 .39365 .37136 .35034 .33051 .31180 1.00000 1.07000 1.14490 1.22504 1.31080 1.40255 1.50073 1.60578 1.71819 1.83846 1.96715 2.10485 2.25219 240985 257853 2.75903 2.95216 3.15882 3.37993 3.61653 3.86968 .93458 .87344 .81630 .76290 .71299 .66634 .62275 .58201 .54393 .50835 .47509 .44401 .41496 .38782 .36245 .33873 .31657 .29586 .27615 .25842 8% 1.00000 1.08000 1.16640 1.25971 1.36049 1.46933 1.58687 1.71382 1.85093 1.99900 2.15892 2.33164 2.51817 2.71962 2.93719 3.17217 3.42594 3.70002 3.99602 4.31570 4.66096 .92593 .85734 .79383 .73503 .68058 .63017 .58349 .54027 .50025 .46319 .42888 .39711 .36770 .34046 .31524 .29189 .27027 .25025 .23171 .21455 1.00000 1.09000 1.18810 1.29503 1.41158 1.53862 1.67710 1.82804 1.99256 2.17189 2.36736 2.58043 2.81267 3.06581 3.34173 3.64248 3.97031 4.32763 4.71712 5.14166 5.60441 .91743 .84168 .77218 .70843 .64993 .59627 .54703 .50187 .46043 .42241 .38753 .35554 .32618 .29925 .27454 .25187 .23107 .21199 .19449 .17843 10% 1.00000 1.10000 1.21000 1.33100 1.46410 1.61051 1.77156 1.94872 2.14359 2.35795 2.59374 2.85312 3.13843 3.45227 3.79750 4.17725 4.59497 5.05447 5.55992 6.11591 6.72750 .90909 .82645 .75132 .68301 .62092 .56447 .51316 .46651 .42410 .38554 .35049 .31863 .28966 .26333 .23939 .21763 .19785 .17986 .16351 .14864 11% 1.00000 1.11000 1.23210 1.36763 1.51807 1.68506 1.87041 2.07616 2.30454 2.55803 2.83942 3.15176 3.49845 3.88328 4.31044 4.78459 5.31089 5.89509 6.54355 7.26334 8.06231 11% .90090 .81162 .73119 .65873 .59345 .53464 .48166 .43393 .39092 .35218 .31728 .28584 25751 .23199 .18829 .16963 .15282 .13768 .12403 1.00000 1.12000 1.25440 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 12% .89286 .79719 .71178 .63552 .56743 .50663 .45235 .40388 .36061 .32197 .28748 .25668 22917 20462 .18270 .16312 .14564 .13004 .11611 .10367 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 15% .86957 .75614 .65752 .57175 .49718 .43233 .37594 .32690 .28426 .24719 .21494 .18691 .16253 .14133 .12289 .10687 .09293 .08081 .07027 .06110 (n) Payments 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 4% 1.00000 2.04000 3.12160 4.24646 5.41632 6.63298 7.89829 9.21423 10.58280 12.00611 13.48635 15.02581 16.62684 18.29191 20.02359 21.82453 23.69751 25.64541 27.67123 29.77808 5% 1.00000 2.05000 3.15250 4.31013 5.52563 6.80191 8.14201 9.54911 11.02656 12.57789 14.20679 15.91713 17.71298 19.59863 21.57856 23.65749 25.84037 28.13238 30.53900 33.06595 1.00000 2.06000 3.18360 4.37462 5.63709 6.97532 8.39384 9.89747 11.49132 13.18079 14.97164 16.86994 18.88214 21.01507 23.27597 25.67253 28.21288 30.90565 33.75999 36.78559 7% 1.0000 2.0700 3.2149 4.4399 5.7507 7.1533 8.6540 10.2598 11.9780 13.8164 15.7836 17.8885 20.1406 22.5505 25.1290 27.8881 30.8402 33.9990 37.3790 40.9955 8% 1.00000 2.08000 3.24640 4.50611 5.86660 7.33592 8.92280 10.63663 12.48756 14.48656 16.64549 18.97713 21.49530 24.21492 27.15211 30.32428 33.75023 37.45024 41.44626 45.76196 Net Present Value Profitability Index 1.00000 2.09000 3.27810 4.57313 5.98471 7.52334 9.20044 11.02847 13.02104 15.19293 17.56029 20.14072 22.95339 26.01919 29.36092 33.00340 36.97351 41.30134 46.01846 51.16012 10% 10% 1.00000 2.10000 3.31000 4.64100 6.10510 7.71561 9.48717 11.43589 13.57948 15.93743 18.53117 21.38428 24.52271 27.97498 31.77248 35.94973 40.54470 45.59917 51.15909 57.27500 11% 11% 1.00000 2.11000 3.34210 4.70973 6.22780 7.91286 9.78327 11.85943 14.16397 16.72201 19.56143 22.71319 26.21164 30.09492 34.40536 39.18995 44.50084 50.39593 56.93949 64.20283 12% 1.00000 2.12000 3.37440 4.77933 6.35285 8.11519 10.08901 12.29969 14.77566 17.54874 20.65458 24.13313 28.02911 32.39260 37.27972 42.75328 48.88367 55.74972 63.43968 72.05244 15% .86957 1.62571 2.28323 2.85498 3.35216 3.78448 4.16042 4.48732 4.77158 5.01877 5.23371 5.42062 5.58315 5.72448 5.84737 5.95424 6.04716 6.12797 6.19823 6.25933 1.0000 2.1500 3.4725 4.9933 6.7423 8.7537 11.0668 13.7268 16.7858 20.3037 24.3492 29.0016 34.3519 40.5047 47.5804 55.7174 65.0750 75.8363 88.2118 102.4435 Internal Rate of Return Present Value of 1 TABLE 4 Present Value of an Annuity of 1 Option A Option B 4% .96154 .92456 .88900 .85480 .82193 .79031 .75992 .73069 .70259 .67556 .64958 .62460 .60057 .57748 .55526 .53391 .51337 .49363 .47464 .45639 .95238 .90703 .86384 .82270 .78353 .74622 .71068 .67684 .64461 .61391 .58468 .55684 .53032 .50507 .48102 .45811 .43630 .41552 .39573 .37689 (n) Payments 2 3 4 5 6 7 9 10 11 12 13 14 15 16 17 18 19 20 4% .96154 1.88609 2.77509 3.62990 4.45182 5.24214 6.00205 6.73274 7.43533 8.11090 8.76048 9.38507 9.98565 10.56312 11.11839 11.65230 12.16567 12.65930 13.13394 13.59033 5% .95238 1.85941 2.72325 3.54595 4.32948 5.07569 5.78637 6.46321 7.10782 7.72173 8.30641 8.86325 9.39357 9.89864 10.37966 10.83777 11.27407 11.68959 12.08532 12.46221 .94340 1.83339 2.67301 3.46511 4.21236 4.91732 5.58238 6.20979 6.80169 7.36009 7.88687 8.38384 8.85268 9.29498 9.71225 10.10590 1047726 10.82760 11.15812 11.46992 .93458 1.80802 2.62432 3.38721 4.10020 4.76654 5.38929 5.97130 6.51523 102358 7.49867 7.94269 8.35765 8.74547 9.10791 9.44665 9.76322 10.05909 10.33560 10.59401 .92593 1.78326 2.57710 3.31213 3.99271 M2288 5.20637 5.74664 6.24689 6.71008 7.13896 7.53608 7.90378 8.24424 8.55948 8.85137 9.12164 9.37189 9.60360 9.81815 .91743 1.75911 2.53130 3.23972 3.88965 4.48592 5.03295 5.53482 5.99525 6.41766 6.80519 7.16073 7.48690 7.78615 8.06069 8.31256 8.54363 8.75563 8.95012 9.12855 .90909 1.73554 2.48685 3.16986 3.79079 4.35526 4.86842 5.33493 5.75902 6.14457 6.49506 6.81369 7.10336 7.36669 7.60608 7.82371 8.02155 8.20141 8.36492 8.51356 .90090 1.71252 2.44371 3.10245 3.69590 4.23054 4.71220 5.14612 5.53705 5.88923 6.20652 6.49236 6.74987 6.98187 7.19087 7.37916 7.54879 7.70162 7.83929 7.96333 12% .89286 1.69005 2.40183 3.03735 3.60478 4.11141 4.56376 496764 5.32825 5.65022 5.93770 6.19437 6.42355 6.62817 6.81086 6.97399 7.11963 7.24967 7.36578 7.46944