Financial Management , Textbook healthcare finance 6th edition L Gapenski & K Reiter (2016)

1. Investment Analysis. Assuming a 5% annual inflation rate (both revenues and expenses) and a 10% cost of capital, estimate the NPV of the investment shown in the table below. This involves the acquisition of a new imaging equipment.

Year	0		1		2		3	4
Equipment Cost	($185,000)
Installation & Shipping	(150,000)
Revenues (Gross)			$350,000
Supplies Costs			150,000
Labor Costs			125,000
Net Operating Cash Flow
Less Salvage Value								45,000
Net Cash flow

a. Considering the NPV you estimated, would you recommend investing in the imaging equipment? Explain Why?

b. Estimate the IRR for this project and explain the difference between the estimated IRR and the discount rate.