Should the existing V approach to evaluate the deci- 20. Because of its inability to inability to control film and personnel costs in its radiolog al wants to replace its existing picture archive and communication wer version. The existing system, which has a current book value three years ago for $3,600,000 and is being depreciated on a straight-line basis over an Sanger General Hospital wants to rer (PAC) system with a newer version. The existi of $2,250,000, was purchased three years ago for $2.000 aht-line basis over an eight-year life to a salvage value of $0. This system could old for $800,000 today. The new PAC system would reduce the need for staff by eight people per year for nive years at a savings of $40,000 per person per year, and it would reduce film costs by $2,000,000 per year. The project would not affect the level of net working capital. The new PAC system would cost $9,000,000 and would be depre- ciated on a straight-line basis over a five-year life to a salvage value of $0. The economic life of the new system is five years, and the required rate of return on the project is 7 percent a. Should the existing PACS a the existing PAC system be replaced? Use the incremental NPV approach to valuate the decision; assume the hospital is a not-for-profit facility. b. If the facility were a taxpa PAC system be repl ere a taxpaying entity with a tax rate of 30 percent, should the existing mbe replaced? Use the incremental NPV approach to evaluate (Hinti b. Determine the IRR. c. Determine the NPV at a cost of capital of 20 percent. s starting a new inpatient hear demands will generate $5,000.00 will incur operating expenses. 17. Biggs-Gridley Memorial Hospilo ev Memorial Hospital, a nontaxpaying entity, is starting an center on its third floor. The expected patient volume demands w per year in revenues for the next five years. The new center will incuro excluding depreciation, of $3,000,000 per year for the next five u ar for the next five years. The initial cost of quipment is $7,000,000. Straight-line depreciation is used to depreciation expense, and the building and equipment will be depreciated over a fue year life to their salvage value. The expected salvage value of the building and equipment at year five is $800,000. The cost of capital for this project is 10 percent. a. Compute the NPV and IRR to determine the financial feasibility of this project. b. Compute the NPV and IRR to determine the financial feasibility of this project in the were a tax-paying entity with a tax rate of 30 percent. (Hint: see Appendix the hospital is depreciating to the salvage value, there is no tax effect on the asset.) effect on the sale or