The Vet Hospital Melbourne offers a range of modern medicine and procedures for animals. The Hospital is looking at purchasing a new state of the art XRAY machine and requires your assistance with some capital expenditure analysis. The hospital has narrowed down its search to the following machines a) Fixed or b) Portable. The management accountant has indicated the capital budget for the hospital is limited to $350,000 and the required rate of return is 12%. Ignore depreciation and tax in answering this question.

The after-tax cash inflows are as follows:

Additional Information:

Purchase price: Fixed $310,000, Portable $290,000,

Delivery fee for the Portable $45,000,

The Fixed will require a yearly maintenance of $2,000 over its life span,

The Portable requires an upholstery overhaul of $2,500 in the 3rd year,

If the hospital proceeds with the capital purchase of the Portable they are expecting to make one employee redundant. The wages of this staff member equates to $3,200 per year.

Regardless of which Xray machine the hospital buys they will be required to pay membership for accreditation to the National Animal Institute to the value of $500 per year.

The business has outlined that they will not invest in projects that don't provide a minimum of a 25% return.

REQUIRED: (Please use the PV Tables found below and show ALL workings. Note formulas in calculators are not allowed to be applied as students must use the tables to get their answer)

a) Calculate the payback period for each item.

b) Calculate the Net Present Value (NPV) for each item. c) Given the business has specified it will not favour projects that return less than 25% should it proceed with the Fixed? Explain and support your answer using calculations.