California Health Center, a for$-$profit hospital, is evaluating the purchase of new diagnostic equipment. The equipment, which costs $$600,000,$ has an expected life of five years and an estimated pre$-$tax salvage value of $$200,000$ at that time. The equipment is expected to be used $15$ times a day for $250$ days a year for each year of the project's life. On average, each procedure is expected to generate $$80$ in collections, which is net of bad debt losses and contractual allowances, in its first year of use. Thus, net revenues for Year $1$ are estimated at $15$ X $250$ X $$80=$ $$300,000.$ Labor and maintenance costs are expected to be $$100,000$ during the first year of operation, while utilities will cost another $$10,000$ and cash overhead will increase by $$5,000$ in Year $1.$ The cost for expendable supplies is expected to average $$5$ per procedure during the first year. All costs and revenues, except depreciation, are expected to increase at a $5$ percent inflation rate after the first year.

The equipment falls into the MACRS five$-$year class for tax depreciation and hence is subject to the following depreciation allowances:

Year Allowance

$10\mathrm{.}2$

$20\mathrm{.}32$

$30\mathrm{.}19$

$40\mathrm{.}12$

$50\mathrm{.}11$

$60\mathrm{.}06$

The hospital's tax rate is $40$ percent, and its corporate cost of capital is $10$ percent. Assume that the project has average risk.

What is the project's NPV$?$

Note: Format is $xx$,$xxx

What is the project's IRR?

Note: Format is xx$.$x$\%$

This is a tough and lengthy problem to solve...take your time and think things through. Depreciation, taxes, salvage value and inflation are all in play on this problem.