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MRI Purchase Decision Radiology group is considering the purchase of a new MRI. They're evaluating two proposals for what is perceived to be comparable pieces
MRI Purchase Decision Radiology group is considering the purchase of a new MRI. They're evaluating two proposals for what is perceived to be comparable pieces of equipment, as follows: GE Healthcare: Future expenses of $130,000 per year, with an initial capital investment of $2.5M. Siemens: Future expenses of $180,000 per year, with an initial capital outlay of $2.25M. Calculate net present cost to identify the preferred purchase assuming a 7.5% annual discount rate. Details of the cash flows are as follow: Year 0 Initial Outlay Annual Outlay 1 2 3 GE Healthcare ($2,500,000) ($130,000) ($130,000) ($130,000) ($130,000) ($130,000) ($130,000) ($3,280,000) Siemens ($2,250,000) ($180,000) ($180,000) ($180,000) ($180,000) ($180,000) ($180,000) ($3,330,000) 4 5 6 Total Annual Cost of Capital Year 2 Year 3 Year 4 Year 5 Year 6 Today 0 Year 1 1 2 3 4 5 6 Equipment A: Time (t) Cash Outlays Present Value Total Present Value Year 2 Year 3 Year 5 Year 6 Today 0 Year 1 1 Year 4 4 2 3 5 6 Equipment B: Time (t) Cash Outlays Present Value Total Present Value
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