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help me pls P26-7A Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost
help me pls
P26-7A Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expendi- ture, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The fol- lowing estimates were made of the cash flows. The company's cost of capital is 8%. Option A Option B Initial cost $160,000 $227,000 Annual cash inflows $71,000 $80,000 Annual cash outflows $30,000 $31,000 Cost to rebuild (end of year 4) $50,000 $0 Salvage value $0 $8,000 Estimated useful life 7 years 7 years Instructions (a) Compute the (1) net present value and (2) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (b) Which option should be acceptedStep by Step Solution
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