CALCULATOR PRINTER VERSION BACK Problem 25-03A 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 6%. Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Option A $170,000 $72,200 $31,400 $50,100 Option B $274,000 $82,200 $26,700 $0 $8,200 7 years $0 7 years Click here to view the factor table. 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 IndexInternal Rate of Return Option A Option B LINK TO TEXT LINK TO VIDEO Which option should be accepted? should be accepted. Click if you would like to Show Work for this question: Open Show Work TABLE 1 Future Value of 1 (n) Periods 6% 7% 8% 9% 10% 11% 15% 12% 1.00000 0 1.00000 1.00000 1.00000 1.00000 1.00000 1.06000 1.07000 1.08000 1.11000 1.12000 1.15000 2 1.12360 1.14490 1.16640 1.23210 1.25440 1.32250 1.52088 1.19102 1.22504 1.25971 1.36763 1.40493 5% 1.00000 1.05000 1.10250 1.15763 1.21551 1.27628 1.34010 1.40710 1.47746 1.55133 1.26248 1.31080 1.36049 1.51807 1.57352 1.74901 1.00000 1.09000 1.18810 1.29503 1.41158 1.53862 1.67710 1.82804 1.99256 2.17189 1.00000 1.10000 1.21000 1.33100 1.46410 1.61051 1.77156 1.94872 2.14359 2.35795 5 1.33823 1.40255 1.46933 1.00000 1.04000 1.08160 1.12486 1.16986 1.21665 1.26532 1.31593 1.36857 1.42331 1.48024 1.53945 1.68506 1.76234 2.01136 1.41852 1.58687 1.87041 2.31306 1.50363 1.50073 1.60578 1.71819 1.71382 2.07616 7 8 2.66002 1.59385 1.85093 2.30454 3.05902 1.97382 2.21068 2.47596 2.77308 3.10585 3.47855 1.68948 1.83846 1.99900 2.55803 3.51788 10 1.62889 1.79085 1.96715 2.15892 2.36736 2.59374 2.83942 3.15176 4.04556 4.65239 1.71034 1.89830 2.10485 2.33164 2.58043 2.85312 1.71034 1.89830 | 2.10485 2.3314 13.15176 4.65239 - 2.58043 2.81267 3.47855 3.89598 1.79586 2.01220 2.25219 2.85312 13.13843 3.45227 1.51817 2.71962 5.35025 3.49845 3.88328 1.88565 2.13293 2.40985 3.06581 4.36349 6.15279 1.53945 1.60103 1.6507 1.73168 1.80094 1.87298 197993 226000 2.57853 3.79750 | 4.31044 7.0731 4.88711 5.47357 2.07893 2.19656 2.75903 4.ITTE5 4.78459 || 12 13 14 15 16 17 18 19 20 18.13706 2.93719 3.17217 3.42594 3.TUM2 13.34173 3.64248 3.97031 4 3276; 2.18287 2.95216 4.549497 6.13039 9.35762 2.54035 2.69277 | 5.31089 | 5.89509 11.94790 2.29202 3.15882 5.05447 6.8660M 10.76126 12.02582 2.85434 13.37993 14.71712 6.54.355 7.68997 12.37545 3.996102 4.31570 2.40662 2.52695 265330 3.0250 3.61653 15.1416 5.55992 6.11591 | 6.72750 2.10685 12.1912 7.26314 14.23177 8.61276 9.64629 | 3.20714 386968 4.66096 15.6044] 18.06231 16.36654 TABLE 2 Future Value of an Annuity of 1 Payments 4% 5% 6% 8% 9% 15% 10% 1.00000 11% 1.00000 12% 1.00000 1 1 .00000 1.00000 1.00000 1.00000 0 0000 1.00000 2.05000 7% 1.0000 2.0700 3.2149 2.04000 2.08000 2.10000 2.11000 2.12000 2.15000 3 2.06000 3.18360 2.09000 3.27810 3.12160 3.15250 3.24640 3.31000 3.34210 3.47250 4.99338 4.24646 4.31013 4.37462 4.4399 4.50611 4.64100 4.70973 5.52563 5.63709 5.7507 5.41632 6.63298 7.89829 6.74238 5.86660 7.33592 6.10510 7.71561 3.37440 4.77933 6.35285 8.11519 10.08901 6.22780 7.91286 6.80191 6.97532 8.75374 7.1533 8.6540 8.14201 8.39384 8.92280 9.48717 9.78327 11.06680 4.57313 598471 7.52334 9.20044 11.02847 13.02104 15.19293 17.56029 9.21423 9.54911 10.2598 10.63663 11.43589 12.29969 13.72682 11.85943 14.16397 10.58280 11.02656 9.89747 11.49132 13.18079 12.48756 13.57948 9 10 11 14.77566 16.78584 20.30372 12.00611 11.9780 13.8164 15.7836 12.57789 14.48656 15.93743 16.72201 17.54874 20.65458 13.48635 14.20679 14.97164 16.64549 18.53117 19.56143 24.34928 24.34928 14.97164 16.86994 29.00167 12 3 14 | 14.20679 15.91713 17.71298 1 9.59863 21.57856 | 18.88214 21.01507 15.7836 17.8885 20.1406 22.5505 25.1200) 34.35192 13.48635 15.02581 16.62684 18.29191 20.02359 21.82453 23.69751 25 4541 27.67123 | 16.64549 18.97713 21.49530 24.21492 27.15211 40.50471 15 | 20.65458 24.13313 | 28.02911 132.39260 37.27972 42.75328 47.58041 17.56029 | 20.14072 | 22.9539 26.01919 2 9.36(92 33.0M134) 36.97351 41.30 134 46.01846 51.16112 23.27597 25.67253 1853117 21.38428 24.52271 27.97498 31.77248 35.94973 40.5470 45.5917 51.15909 5 7.2750) | 19.56145 | 22.71319 26.2114 30.09492 34.405.36 | 19.18995 44.50084 50.39593 56.93949 20283 23.65749 27.888] | 30.12428 55.71747 28.21288 65.07509 25.84037 28.13238 18 30.90565 30.84012 33.9990 37.3790 75.83636 33.75023 37.45024 41.44626 45.76196 | 48.88367 55.74972 63.43968 2 052 188.21181 3053900 33 KBS25 33.7599 36.78559 29788 40.0955 C 4358 TABLE 3 Present Value of 1 (n) 4% 5% 8% 10% 12% 15% Periods 1 2 6% .94340 7% 93458 11% 90090 96154 .95238 .92593 .90909 .86957 .89286 79719 .92456 90703 .89000 .87344 91743 .84168 .77218 .85734 82645 81162 .75614 .88900 .86384 .83962 .81630 .79383 .73119 .71178 .75132 .68301 .65752 57175 85480 .82270 .79209 .76290 173503 70843 .65873 .63552 .82193 .78353 .74726 .71299 68058 .62092 .59345 49718 -56743 .50663 .79031 .74622 -70496 -66634 .64993 59627 54703 .63017 56447 53464 43233 -71068 .66506 .62275 .58349 48166 45235 37594 .75992 .73069 51316 .46651 .67684 .62741 .58201 54027 50187 43393 40388 32690 70259 .64461 59190 54393 39092 36061 28426 50025 46319 46043 42241 42410 .38554 .67556 .61391 55839 .35218 .32197 -24719 .50835 47509 .64958 .58468 52679 42888 38753 35049 31728 28748 21494 1.64958 58468 52679 147509 135049 128748. 21494 42888 19711 31728 128584 1.49697 31863 125668 18591 55684 53032 44401 41496 1.46884 36770 28966 122917 .16253 11 12 13 14 15 6 2.5751 12319 150507 144230 34(4) 126333 | 14133 62461) .60057 57748 5526 53391 51337 1.38782 36245 48102 41727 38753 3554 32618 129925 27454 25187 23107 21199 19449 123939 31524 129189 12289 458|| | 121763 TIM587 39365 37136 43630 1.33873 31657 (29586 127027 19785 .20900 18829 (16963 15282 13768 120462 1.18270 | 16312 1.14564 13004 11611 10367 09293 49363 41552 135034 .108081 47464 39573 33051 27615 125025 23171 | 21455 1.17986 16351 14804 07027 45639 137689 1.31180 12542 17843 | 12403 106110 TABLE 4 Present Value of an Annuity of 1 (n) Payments 4% 5% 6% 7% 8% 9% 15% 10% 90909 11% 90090 96154 95238 94340 93458 91743 92593 1.78326 1.88609 1.85941 1.80802 1.75911 1.73554 2.77509 2.72325 2.62432 2.48685 1.83339 2.67301 3.46511 4.21236 1.71252 2.44371 3.10245 3.69590 12% 8 9286 1.69005 2.40183 3.03735 3.60478 4.11141 3.62990 2.57710 3.31213 3.99271 4.62288 3.54595 3.38721 4.45182 4.32948 4.10020 5.24214 86957 1.62571 2.28323 2.85498 3.35216 3.78448 4.16042 4.48732 4.77158 5.07569 4.91732 4.76654 2.53130 3.23972 3.88965 4.48592 5.03295 5.53482 5.99525 6.41766 4.23054 3.16986 3.79079 4.35526 4.86842 5.33493 5.75902 6.00205 5.78637 5.58238 5.38929 5.20637 4.56376 4.96764 6.73274 6.46321 6.20979 5.97130 7.43533 7.10782 6.80169 6.51523 5.32825 4.71220 5.14612 5.53705 5.88923 6.20652 5.74664 6.24689 6.71008 7.13896 10 7.36009 7.72173 7.02358 5.65022 6.14457 8.11090 8.76048 5.01877 5.23371 11 7.88687 8.30641 7.49867 6.80519 5.93770 6.49506 11 8.761048 8.3064] 7.88687 17.49867 6.49506 6.20652 5.93770 5.2.3.371 9.38507 8.86325 8.38384 794269 7.13896 17.5.3608 7.90378 6.80519 7.16073 7.48690 6.49236 6.19437 5.42062 6.81369 7.10336 9.98565 9.39357 8.85268 8.35765 6.74987 6.42355 5.58315 10.56312 9.89864 9.29498 874547 8.24424 7.78615 6.62817 15.72448 7.36669 7.60608 6.98 187 7.19087 11.1 18:39 10.37966 971225 910791 8.55948 18.06069 6.81086 5.84737 | |1.65230 10.837 10.10590 9.4.4665 8.85137 7.82371 697399 595424 831256 8.54363 7.37916 7.54879 12.16567 11.27407 10.47726 9.76322 91214 18.02155 7.J1963 6.14716 | 11.68959 10.82760) 10.0509 937189 18.75563 8. 20141 7.24967 | 6.12797 12.659301 13.1394 | 13.59033 17.70 162 17.83929 12.08532 11.15812 10.33560 16M360 8.95012 8.36492 6.19823 7.36578 7.46944 12.46221 | 11.46992 10.59401 19.81815 | 9.12855 8.51356 17.96333 6 .25935