California Imaging Center, a not-for-profit business, is evaluating the purchase of new diagnostic equipment, The equipment, which costs $600,000, has an expected life of five years and an estimated 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 cash collections during the 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 per procedure during the first year. All costs and revenues are expected to increase at a 5 percent inflation rate after the first year. The centers corporate cost of capital is 10 percent.

a.Estimate the projects net cash flows over its five-year estimated life. (hint: use the following format as a guide

Year	0	1	2	3	4	5
Equipment Cost
Net Revenue
Less :Labor/Maintenance costs
Utilities Costs
Supplies
Incremental overhead
Operating Income
Equipment Salvage Value
Net Cash Flow

I

b. What are the projects NPV and IRR? (Assume for now that the project has average risk.)

Insert your response here.

c. Assume the project is assessed to have high risk and California Imaging Center adds or subtracts 3 percent points to adjust for project risk, Now , what is the projects NPV? Does the risk assessment change how the projects IRR is interpreted?

Insert your response here.