The other answer posted to this question on Chegg is incorrect.

P7.5 (LO 2, 3, 4), AN Dr. Ben takes great pride in his dental office. He hires very qualified and friendly hygienists, and he makes sure that the office environment is welcoming and that services are provided with the utmost care for patients' comfort. Accordingly, Dr. Ben carefully analyzed options for an X-ray machine. Naturally, he wanted a durable model with high-quality images, but ease of use and patient comfort were also important criteria. He selected a higher-end model with a 5-year warranty and a sticker price of $35,000. Annual operating costs for this equipment were estimated at $5,500. Prior reviews of similar X-ray machines suggested a useful life of 10 years. Dr. Ben would depreciate the machine over 10 years, using the straight-line method, and there would be no salvage value. Boy, was he fooled! As soon as the equipment went off warranty at the beginning of year 6, it started to malfunction. Dr. Ben called a technician, who said that a significant repair would enable the machine to operate effectively for its remaining 5 years of useful life. This repair would be costly, at $10,000 for parts and labor. However, one benefit of the repairs was that operating costs would be slightly reduced-earning a savings of approximately $750 per year. Required a. Determine the NPV of cash flows related to the repair option, considering that Dr. Ben's tax rate is 25% and he has an 8% minimum required return. (Hint: Calculate the book value of the existing machine to determine the remaining depreciable amount.) b. Despite Dr. Ben's commitment to the current X-ray machine, his office manager suggests a replacement option instead, with the following details. - Initial price (installed), $40,000. - A 5-year full warranty; no salvage value. - Annual operating costs of $3,000. If the new machine is purchased, the existing X-ray machine could be sold for $5,000. Dr. Ben will assume that this new machine will be operational only as long as its warranty. Using these details along with the same tax rate and discount rate noted above, determine the NPV of cash flows related to this replacement option. (Hint: Use the book value of the existing machine to determine if there would be a gain or loss on the sale.) For simplicity, assume gains and losses are subject to the same 25% tax effects (and the same timing effects) as ordinary income items. c. What is the difference in the two present value amounts in parts (a) and (b)? Determine how low the new asset's purchase price would need to be in order for Dr. Ben to be indifferent between the repair and replace options. Is it likely he would be able to find a new, still comparable, asset for that price? d. Describe other qualitative and/or quantitative information that could come into play that would make the new asset (i.e., the replacement decision) just as attractive-if not more so-than the repair option