Dr$.$ Magneto is evaluating whether to open a private MRI clinic in leased office space in a local strip mall. The clinic will run for two years and then close. Before the clinic opens, the offices require $$200,000$ of renovations. Dr$.$ Magneto will buy $$25,000$ of computer equipment and one MRI machine. The MRI machine $($GE $3\mathrm{.}0$T Signa Excite HD$)$ costs $$2,500,000.$ Assume that the renovations, computer equipment and MRI are paid for at the beginning of the first year $($t$=0)$ and that all three are classified as $15-$year property.

Assume that the MRI machine will be sold for $$500,000$ at the end of the second year of business. The computer equipment will be worthless at that time.

The clinic can perform $72$ scans per week for $49$ operational weeks per year. The clinic will charge $$600$ per scan.

The clinic will need two technicians, two receptionists and one office manager. Wages, salaries and other payroll costs $($i$.$e$.,$ health insurance premiums$)$ will total $$275,000$ per year. Maintenance, supplies, marketing and operating costs for the machine are expected to be $$200,000$ per year. Annual rent is $$60,000$ payable at the end of each year. Assume that all revenues $($and expenses$)$ occur at the end of the year. The tax rate is $40\%$ and Dr$.$ Magneto's cost of capital is $10\%.$ What is the initial cash flow for the project?

MACRS Depreciation Rates

Year $|10-$Year $|15-$Year

$1|10\mathrm{.}00\%|5\mathrm{.}00\%$

$2|18\mathrm{.}00\%|9\mathrm{.}50\%$

$3|14\mathrm{.}40\%|8\mathrm{.}55\%$

Group of answer choices

$-$$$200,000$

$-$$$2,725,000$

$-$$$2,500,000$

$-$$$1,000,000$

$-$$$25,000$