Question
Part B-Capital Investment Decisions Sacred Mind Hospital is considering the purchase of new medical equipment. The decision has come down to choosing between Machine
Part B-Capital Investment Decisions Sacred Mind Hospital is considering the purchase of new medical equipment. The decision has come down to choosing between Machine A and Machine B. Machine A has a cost of $120,000 and has an expected economic life of five years, after which it has no scr value. The cash flowed income for the next five years from this machine is: . $45,000 B $44,500 19 $40,000 9 $39,000 9 -$5,000 Machine B has an initial cash outlay of $110,000 with an economic life of five years and no scrap value. T cash flowed income from this machine is expected to be: W -$8,000 $35,000 NO $45,000 . $62,000 $65,000 Sacred Mind Hospital prefers projects that pay for themselves within three years. The discount rate is 10%. Sacred Mind Hospital also requires an Internal Rate of Return of at least 10% before a capital investment c proceed. 1. Evaluate the relative merits of these machines using: 1.1 The actual (or nominal) cash flow 1.2 The payback period (PP) 1.3 1.4 Net present value (NPV) Internal rate of return (IRR) 2. Which machine is the better investment? Explain your answer and your preferred method of evaluating th investment merits of these machines. B. A late quotation for a machine from another supplier (Machine C) has come through and needs to evaluated. The following parameters were derived from the quotation: Machine C has an initial cash outlay of $130,000 with an economic life of six years and no scrap value. Th cash flowed income from this machine is expected to be: -$10,000 $25,000 $35,000 $45,000 $60,000 $50,000 How does Machine C compare with Machines A and B in terms of investment value? Explain your answer.
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