A clinic is considering the possibility of two new purchases: new MRI equipment and new biopsy equipment. Each project requires an investment of $430,000. The expected life for each is five years with no expected salvage value. The net cash inflows associated with the two independent projects are as follows:YearMRI EquipmentBiopsy Equipment1$221,000 $49,000 2111,000 60,000 3157,000 104,000 491,000 212,000 546,000 244,000 The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems.Required:Compute the net present value of each project, assuming a required rate of 10 percent. If the NPV is negative, enter your answer as a negative value.

Net Present Value: It is the profitability measure applied in areas of capital budgeting to…

Answered: Compute the net present value of each…

Compute the net present value of each project, assuming a required rate of 10 percent. If the NPV is negative, enter your answer as a negative value

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 2CE

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A clinic is considering the possibility of two new purchases: new MRI equipment and new biopsy equipment. Each project requires an investment of $425,000. The expected life for each is five years with no expected salvage value. The net cash inflows associated with the two independent projects are as follows: Year MRI Equipment Biopsy Equipment1 $200,000 $50,0002 100,000 50,0003 150,000 100,0004 100,000 200,0005 50,000 237,500 1. Compute the payback period for each project. Assume that the manager of the clinic accepts only projects with a payback period of three years or less. Offer some reasons why this may be a rational strategy even though the NPV computed in Exercise 19-11 may indicate otherwise. 2. Compute the accounting rate of return for each project.
A hospital is considering the possibility of two new purchases: new X-ray equipment and new biopsy equipment. Each project would require an investment of P750,000. The expected life for each is 5 years with no expected salvage value. The net cash inflows associated with the two independent projects are as follows: X-ray Equipment Year Biopsy Equipment 1 P 75,000 2 3 4 75,000 525,000 600,000 675,000 What is the net present value of each project assuming a required rate of return of 12%? 5 c. X-ray: P54,312 Biopsy: P512,389 , Not Selected Correct answer: P375,000 b. X-ray: P55,821 Biopsy: P514,766 a. X-ray: P56,378 Biopsy: P499,818 150,000 300,000 150,000 75,000
A hospital wants to buy a new MRI machine for $45,000. The annual revenue from the machine is estimated at $18,000 per year while maintenance costs per year are calculated to be $ 6,000. The salvage value at the end of the machine’s six-year operational life is $12,000. If the hospital’s MARR is 10% per year, should this investment be undertaken? (Use PW-Method).
Prime Financial Inc. is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $125,000 and each with an eight-year life and expected total net cash flows of $200,000. Location 1 is expected to provide equal annual net cash flows of $25,000, and Location 2 is expected to have the following unequal annual net cash flows: Year 1 $56,000 Year 5 $18,000 Year 2 43,000 Year 6 14,000 Year 3 26,000 Year 7 11,000 Year 4 24,000 Year 8 8,000 Determine the cash payback period for both location proposals.
Jan Booth is considering investing in either a storage facility or a car wash facility. Both projects have a five-year life and require an investment of $360,000. The cash flow patterns for each project are given below. Storage facility: Even cash flows of $120,000 per year Car wash: $112,500, $142,500, $60,000, $120,000, and $90,000 Required: Calculate the payback period for the storage facility (even cash flows).years Calculate the payback period for the car wash facility (uneven cash flows). Round your answer to three decimal places. years Which project should be accepted based on payback analysis? What if a third mutually exclusive project, a laundry facility, became available with the same investment and annual cash flows of $150,000? Now which project would be chosen?
Perit Industries has $155,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project $ 155,000 Project A $ 0 Project B $ 0 $ 155,000 $ 25,000 $ 8,600 $ 40,000 6 years $ 0 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 14%. Click here to view Exhibit 12B-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2 Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you…
Perit Industries has $155.000 to invest. The company is trying to decide between two alternative uses of the funds. The altematives are: Project A Project B $155,000 Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project $ 20,000 $ 9,400 6 years $155, 000 $ 55,000 24 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 14%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Requlred: 1. Compute the net present value of Project A. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.) 2 Compute the net present value of Project B. (Enter negative value with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you recommend…
Crane’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,220. Each project will last for 3 years and produce the following net annual cash flows. Year AA BB CC 1 $7,070 $10,100 $13,130 2 9,090 10,100 12,120 3 12,120 10,100 11,110 Total $28,280 $30,300 $36,360 The equipment’s salvage value is zero, and Crane uses straight-line depreciation. Crane will not accept any project with a cash payback period over 2 years. Crane’s required rate of return is 12%. (a)Compute each project’s payback period. (Round answers to 2 decimal places, e.g. 15.25.) AA years BB years CC years (b)Compute the net present value of each project. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round final answers to the nearest whole dollar, e.g. 5,275. For calculation purposes, use 5 decimal places as…
Flounder’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,320. Each project will last for 3 years and produce the following net annual cash flows. Year AA BB CC 1 $7,420 $10,600 $13,780 2 9,540 10,600 12,720 3 12,720 10,600 11,660 Total $29,680 $31,800 $38,160 The equipment’s salvage value is zero, and Flounder uses straight-line depreciation. Flounder will not accept any project with a cash payback period over 2 years. Flounder’s required rate of return is 12%.Click here to view PV table.(a)Compute each project’s payback period. (Round answers to 2 decimal places, e.g. 15.25.) AA years BB years CC years Which is the most desirable project? The most desirable project based on payback period is Project AAProject BBProject CC Which is the least desirable project? The least desirable project based on payback period is…
Perit Industries has $175,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 175,000 Project B $ 0 $ 0 $ 175,000 $ 27,000 $ 44,000 $ 8,800 6 years $ 0 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 15%. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. Note: Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount. 2. Compute the net present value of Project B. Note: Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount. 3. Which investment alternative (if either)…
Perrot Industries has $325,000 to Invest. The company is trying to decide between two alternative uses of the funds. The alternatives follow: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A Project B Project Net Present Value A $270,000 67,650 21, 200 6 years O Project A Project B B The working capital needed for project B will be released at the end of six years for Investment elsewhere. Perrot Industries discount rate is 14%. Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. $ 270,000 54,400 Required: 1-a. Calculate net present value for each project. (Round discount factor(s) to 3 decimal places. Round other Intermediate calculations and final answer to the nearest whole number.) 6 years 1-b. Which investment alternative (if elther) would you recommend that the company accept?
Perit Industries has $110,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Cost of equipment required Working capital investment required Annual cash inflows i Salvage value of equipment in six years Life of the project Project A $ 110,000 $0 $ 20,000 $ 8,600 1. Net present value project A 2. Net present value project B 3. Which investment alternative (if either) would you recommend that the company accept? 6 years Project B $0 $ 110,000 $ 68,000 $0 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 16%. Click here to view Exhibit 148-1 and Exhibit 148-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter…