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Marshall Healthcare System is a for-profit entity and is planning to purchase an MRI and ultrasound equipment for its new imaging center. The equipment will generate $3,000,000 per year in revenues for the next (5) years. The expected operating expense, excluding depreciation, will increase expenses by $1,200,000 per year for the next (5) years. The initial capital investment outlay for the imaging equipment is $5,500,000 and will be depreciated on a straight-line basis to its salvage value of $800,000 at year (5). The cost of capital for this project is 12%. The tax rate for Marshall Healthcare is 40%.
a. Compute the NPV and IRR to determine the financial feasibility of this project.
b. Should Marshall Healthcare system accept or reject this project based on financial feasibility? Enter ACCEPT or REJECT as your answer.
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- Robertson Construction Company is considering two projects upon which to bid. The first is for 5-year renovation of an aging government building. For Robertson to do this job they will need to invest $1.2 million into various equipment (with the total salvage value being approximately $50,000, with yearly operations cost beginning at $5,000 in year 1, and increasing by $500 each year of the project). The second is the building of a library which is expected to take 7 years and will require a $1.6 million dollar investment (salvage being $80,000 at the end of 7 years with yearly operations cost at $4,000). Assume that almost identical renovation projects come up every 5 and 7 years respectively. Robertson has a MARR of 10% a) Robertson has been asked to quote an annual price that each project will cost. What is the minimum annual price Robertson should ask for if each project will be worth their while? Include all your calculations for this.b) If these projects were mutually exclusive…South Side, Inc., is considering opening a branch in another state. The operating cash flow will be $185,000 a year. The project will require new equipment costing $495,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The equipment will have a market value of $95,000 at the end of the project. The project requires an initial investment of $110,000 in net working capital, which will be recovered at the end of the project. The tax rate is 28 percent. What is the project's IRR? Enter your answer as a whole number rounded to three decimal places, i.e., enter 5.123% as 5.123.XYZ is evaluating a project that would require the purchase of a piece of equipment for $440,000 today. During year 1, the project is expected to have relevant revenue of $786,000, relevant costs of $201,000, and relevant depreciation of $132,000. XYZ would need to borrow $440,000 today to pay for the equipment and would need to make an interest payment of $33,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $337,000. What is the tax rate expected to be in year 1? A rate equal to or greater than 21.96% but less than 26.61% A rate less than 21.96% or a rate greater than 46.34% A rate equal to or greater than 31.02% but less than 38.39% A rate equal to or greater than 38.39% but less than 46.34% A rate equal to or greater than 26.61% but less than 31.02%