Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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
image text in transcribed
image text in transcribed
image text in transcribed
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

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions

Question

d. Is the program accredited?

Answered: 1 week ago

Question

=+8. Be sure you considered consumer benefits.

Answered: 1 week ago

Question

=+4. Consider competitors' campaigns. How could yours stand out?

Answered: 1 week ago

Question

=+5. Review the six categories of 50 strategies.

Answered: 1 week ago