Dr. Hunter Thompson is considering opening an MRI clinic in Aspen to profit from reckless skiers and snowboarders. The business will operate for three years. For planning purposes, all operating cash flows are assumed to occur at year-end with the first year's flows occurring one year from today. The MRI machine, a GE 3.0T Signa Excite HD, costs

$ 2.48$2.48

million and will be delivered immediately and installed for

$ 92 comma 000$92,000

(GE expects cash on delivery). Assume that the machine is classified as a 5-year property and can be sold for

$ 509 comma 000$509,000

at the end of the three years. (MACRS depreciation rates are shown in the table

LOADING...

.)

The forecasted number of scans each year is

2 comma 5302,530

and the clinic will charge

$ 690$690

per scan. Dr. Thompson will lease office space in a local strip-mall. Annual operating expenses are

$ 557 comma 000$557,000

for rent, computer equipment leases, labor (receptionist, nurse and technician), maintenance and advertising. Dr. Thompson plans to offer credit to his customers. He expects to have about

4545

days of sales in accounts receivable, or about

$ 296 comma 000$296,000.

The famed venture capitalist, Oscar Acosta, has pledged to provide all of the equity needed for the project with the condition that he receive an annual return of

9.7 %9.7%

on his invested capital. The tax rate is

35 %35%.

a. What are initial cash flows for the MRI project?

b. What are the operating cash flows in the first year?

c. What are the terminal year cash flows (not including the operating cash flows)?

d. What is the NPV of the project?