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I need help in solving this equation by steps thank you Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option
I need help in solving this equation by steps thank you
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 expenditure, 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 following estimates were made of the cash flows. The company's cost of capital is 5%. Option A Option B Initial cost $166,000 $278,000 Annual cash inflows $70.600 $81,000 Annual cash outflows $31.700 $26,700 Cost to rebuild (end of year 4) $49.600 SO Salvage value $0 $8,800 Estimated useful life 7 years 7 years Compute the (1) net present value. (2) profitability index, and (3) 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.) of the net present values negative, use elther a negative sign preceding the number eg 45 or parentheses es (45). Round answers for present value and IRR to decimal places, eg, 125 and round profitability index to 2 decimal places, es 12.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net Present Value Profitability Index Internal Rate of Return Option A $ 5 Option B $ * X Your answer is incorrect Which option should be accepted? should be accepted Step by Step Solution
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