P12.3A (LO 2, 3, 4), AN Service 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 8%. Compute net present value, profitability index, and internal rate of return. Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Option A $160,000 $71,000 $30,000 $50,000 Option B $227,000 $80,000 $31,000 $0 $8,000 $0 7 years 7 years Instructions a. 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.) (1) NPV A $16,709 (3) IRR B 12% b. Which option should be accepted