California Imaging Center, a not-for-profit business, is evaluating the purchase of new diagnostic equipment. The equipment which costs $1,000,000 has an expected life of 5 years and an estimated salvage value of $400,000 at that time. The equipment is expected to be used 20 times a day for 350 days a year for each year of the projects life. On average, each procedure is expected to generate $100 in cash collections during the first year of use. Thus, net revenues for Year 1 are estimated at 20x350x$100 = $700,000. Labor and maintenance costs are expected to be $150000 during the first year of operation, while utilities will cost another $15,000. The cost of supplies is expected to average $10 per procedure during the first year. All costs and revenues are expected to increase at an inflation rate of 5% after the first year The corporate cost of capital is 8%. Please see the attached Excel sheet for the data related to this project and answer the following questions.

Show your work in Excel.

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

b) Estimate the projects net present value (NPV) and internal rate of return (IRR). Is the project financially acceptable?

Note: All costs and revenues are expected to increase at a 5% inflation rate after Year 1

QQ Calibri 11. BI V $A $ - EE- 5 E C Year 1 D Year 2 E Year 3 F Year 4 G Year 5 2 4 B Year Equipment cost $(1,000,000) Net revenues Less:Labor/maintenance costs Utilities costs Supplies Operating income Equipment salvage value Net cash flow $700,000 $150,000 $15,000 $70,000 $200,000 6 7 8 9 10 11 Cost of capital 8% 13 NPV IRR 14 15 16 17 Note: Case Report 3 Q11 QQ Calibri 11. BI V $A $ - EE- 5 E C Year 1 D Year 2 E Year 3 F Year 4 G Year 5 2 4 B Year Equipment cost $(1,000,000) Net revenues Less:Labor/maintenance costs Utilities costs Supplies Operating income Equipment salvage value Net cash flow $700,000 $150,000 $15,000 $70,000 $200,000 6 7 8 9 10 11 Cost of capital 8% 13 NPV IRR 14 15 16 17 Note: Case Report 3 Q11