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 5 years and an estimated pretax 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 projects 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 15X250X80=$300,000. Labor 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 5% inflation rate after the first year.

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

Year	Allowance
1	0.20
2	0.32
3	0.19
4	0.12
5	0.11
6	0.06
Total	1.00

Questions for above situation:

The hospital's tax rate is 40 percent and its corporate cost of capital is 10 percent.

a. Estimate the projects net cash flows over its five year estimated life

Note: use following format as a guide

	0	1	2	3	4	5
Equipment cost
Net Revenues
Less: Labor/maintenance costs
Utilities costs
supplies
incremental overhead
depreciation
Operating income
Taxes
Net operating income
Plus: Depreciation
Plus: Equipment salvage value
Net Cash Flow

b. What are the project's NPV and IRR (Assume that the project has average risk).