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 GE Healthcare Siemens Initial Outlay 0 ($2,500,000) ($2,250,000) Annual Outlay 1 ($130,000) ($180,000) 2 ($130,000) ($180,000) 3 ($130,000) ($180,000) 4 ($130,000) ($180,000) 5 ($130,000) ($180,000) 6 ($130,000) ($ 180,000) Total ($3,280,000) ($3,330,000) Annual Cost of Capital Year 2 Year 4 Year 5 Today 0 Year 1 1 Year 3 3 Year 6 6 2 4 5 Equipment A: Time (t) Cash Outlays Present Value Total Present Value Year 1 Year 2 Year 3 Today 0 Year 4 4 Year 5 5 Year 6 6 1 2 3 Equipment B: Time (t) Cash Outlays Present Value Total Present Value Alternative calculations using Excel formulas: Equipment A: PV of Annuity PV of Initial Outlay Total PV Equipment B: PV of Annuity PV of Initial Outlay Total PV