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 6%. Option A Option B Initial cost $171,000 $269,000 Annual cash inflows $70,500 $81,500 Annual cash outflows $29,600 $27,000 Cost to rebuild (end of year 4) $48,900 $0 Salvage value $0 $7,100 Estimated useful life 7 years 7 years.

Compute the 

(1) net present value. 

(2) profitability index. 

(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.) (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to 0 decimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)