Tuscan Health System is looking to upgrade its diagnostic imaging equipment by purchasing a

new MRI and ultrasonography unit for its dedicated imaging facility on the main campus. The

equipment is expected to generate $$3,000,000$ a year in positive revenue $($net of bad debt and

contractual allowances$)$ for the next five years. The project operating expenses, excluding

depreciation, are estimated to be $$1,200,000$ per year for the next five years. The initial capital

expense$/$outlay for the equipment is $$5,500,000,$ which will be depreciated on a straight$-$line

basis to its projected salvage value of $$800,000$ at the end year five, at which time the

equipment will be sold for the salvage amount. The cost of capital for this project is assumed to

be $12\%,$ which is the organization's hurdle rate for what it considers to be average risk projects.

$($Note: Tuscan$|$Health System is a non$-$profit, tax$-$exempt organization$).$

a$.$ Use the template below to estimate the project cash flows for years $0-5,$ with year zero

$(0)$ constituting the initial cash outlay for the project, and years $1-5$ constituting the net

project cash flows per year. Make sure to include the annual depreciation expense in

years $1$ through $5-$ use the straight$-$line method formula to estimate yearly depreciation

expense $($initial asset value $-$ salvage value$)/$ # of years. Also, make sure to account for

the sale of the equipment at the end of year $5$ as a positive cash flow from the project.

b$.$ Determine the IRR of the project.

c$.$ Determine the NPV of the project using Tuscan's cost of capital for average risk projects.

d$.$ Comment on the financial feasibility of the project from Tuscan's perspective.