Problem #2 The South Shore Medical Clinic My friend Dr. Bakerwood is considering bringing in both X-ray and blood-testing equipment and has asked me to do a feasibility study to determine if it is worthwhile He expects to pay $525,000 for the equipment and will depreciate it annually using straight-line, providing for a $20,000 salvage value. He expects to generate $380,000 in new annual revenue, but will forfeit $65,000 that he receives annually in referral fees from the clinics that were doing his blood testing and X-rays. Salary required for a medical technician will cost $95,000 per year The equipment will only have a useful life of five years at which point the equipment manufacturer believes that Dr. Baker could receive $40,000 in its disposition, even though Dr. Bakerwood is only providing for a $20,000 salvage value in deriving the depreciable basis With a tax rate of 30% and a cost of capital of 20%, is it worth it for Dr. Bakerwood to undertake the investment or just leave it be and collect the annual referral fees of $65,000 without the added expenses. Also, Dr. Bakerwood has asked how much "wiggle room" (in %) does he have in his projected revenue estimates before it is not worth his while to explore the undertaking. Please prove your results