2 Spiro Hospital is investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the equipment. After-tax cash inflows for the two competing projects are as follows:Year12345Puro Equipment$320,000280,000240,000Puro equipment:160,000120,000Briggs equipment:Briggs EquipmentBoth projects require an initial investment of $560,000. In both cases, assume that the equipment has a life of 5 years with no salvage value.326,404 X$120,000120,000320,000Required:Round present value calculations and your final answers to the nearest dollar.1. Assuming a discount rate of 10%, compute the net present value of each piece of equipment.$ 435,072 X400,000440,0002. A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $560,000, but this equipment will produce even cash flows over its 5-year life. What must the annual cash flow be for this equipment to be selected over the other two?Assume a 10% discount rate.$ 262,483 X per year

The Net present value is the difference between the present value of cash inflows and the present…

Answered: piro Hospital is investigating the…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Spiro Hospital is investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the equipment. After-tax cash inflows for the two competing projects are as follows: Year Puro Equipment Briggs Equipment 1 $320,000 $120,000 2 280,000 120,000 3 240,000 320,000 4 160,000 400,000 5 120,000 440,000 Both projects require an initial investment of $560,000. In both cases, assume that the equipment has a life of 5 years with no salvage value. Required: Round present value calculations and your final answers to the nearest dollar. 1. Assuming a discount rate of 9%, compute the net present value of each piece of equipment. Puro equipment: $fill in the blank 1 Briggs equipment: $fill in the blank 2 2. A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $560,000, but this equipment will produce even cash flows over…
Spiro Hospital is investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the equipment. After-tax cash inflows for the two competing projects are as follows: Year 1 2 3 4 5 Puro Equipment $320,000 280,000 240,000 160,000 120,000 Briggs Equipment $120,000 120,000 320,000 400,000 440,000 Both projects require an initial investment of $560,000. In both cases, assume that the equipment has a life of 5 years with no salvage value. Required: Round present value calculations and your final answers to the nearest dollar. 1. Assuming a discount rate of 10%, compute the net present value of each piece of equipment. Puro equipment: Briggs equipment: 2. A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $560,000, but this equipment will produce even cash flows over its 5-year life. What must the annual cash flow be for this equipment to be selected over the…
ii) The directors of Komfwe’s Bibbentuckers are considering purchasing a new laundry machinery that would improve the quality and productivity of cleaning processing. The initial investment needed for the machinery is ZMW 120, 000. The cost of capital is 12% from Citizen Economic Empowerment Commission With a new machinery in place, the project is expected to generate the following cash flows, ZMW 20 000 in the first year, ZMW 30 000 in the second year, ZMW 40 000 in the third year, ZMW 50 000 in the fourth year, and ZMW 50 000 in the fifth year. • Calculate he Payback period for the project • Calculate the Net present value for the project • Advice if the project should be accepted under Net present value and payback period to Komfwe's Management board?
Bellevue Bell Inc. is trying to determine if it is financially viable to purchase a new metal melting machine. The cost of this machine is $135,376, and it is expected to have yearly expected cash flows of $32,000. The machine has a useful life of 6 years. If Bellevue will only fund projects with a minimum internal rate of return of 12%, determine the internal rate of return on the machine and recommend if Bellevue should purchase it or not.
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: Year MRI Equipment Biopsy Equipment 1 $221,000 $49,000 2 111,000 60,000 3 157,000 104,000 4 91,000 212,000 5 46,000 244,000 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.
NieR Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever medicine for individuals who suffer from cardiovascular diseases. The company has to invest in equipment which costs $2,500,000 and will be depreciated under the MACRS system for a 5-year asset class. It is expected to have a scrap value of $700,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. NieR Pharmaceuticals expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new pain-reliever. Expected annual sales for…
NieR Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever medicine for individuals who suffer from cardiovascular diseases. The company has to invest in equipment which costs $2,500,000 and will be depreciated under the MACRS system for a 5-year asset class. It is expected to have a scrap value of $700,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. NieR Pharmaceuticals expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new pain-reliever. Expected annual sales for…
Vigor Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever medicine for individuals who suffer from cardiovascular diseases. The company has to invest in equipment which costs $2,500,000 and will be depreciated under the MACRS system for a 5-year asset class. It is expected to have a scrap value of $700,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Vigor Pharmaceuticals expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new pain-reliever. Expected annual sales…
The Sopwith Aviation Company is considering building a new short-range commuter jet, code named 'Sky Streak.' The aircraft's engines will be powered by a new green energy source: high-tension elastomer. The plane will be built in the old, unused S.E.5a assembly facility in Everett WA. The project is expected to last three years. Selected cash flows for the project are summarized in the table below. Sopwith's tax rate is 34% and its cost of capital is 12%. The NPV of the project is $242.86M. Selected Cash Flows for the 'Sky Streak' Project ($000,000s) Year Free cash flow 0 -3,500 1 $ -21.34 X 1,184 2 1,252 3 2,371 After the first management discussion about Sky Streak, Microsoft has offered to rent the old S.E.5a assembly area to house programmers for its XBOX gaming system. Microsoft has offered rent of $90M per annum (end-of-year). Given this information, what is the revised NPV for the Sky Streak project? (Express your answer in millions of dollars rounded to two decimal places.)
MaxiCare Corporation, a not-for-profit organization, specializes in health care for senior citizens. Management is considering whether to expand operations by opening a new chain of care centers in the inner city of large metropolitan areas. For a new facility, initial cash outlays for lease, renovations, net working capital, training, and other costs are expected to be about $15 million. The corporation expects the cash inflows of each new facility in Year 1 to equal zero. Net cash inflows are expected to increase to $1 million in each of years 2 and 3; $2.5 million in year 4; and $3 million in each of years 5 through 10. The lease agreement for the facility will expire at the end of year 10, and MaxiCare expects the cost to close a facility will pretty much exhaust all cash proceeds from the disposal. Cost of capital for MaxiCare is estimated as 12%. Assume that all cash flows occur at year end. Required: 1. Compute (using the built-in NPV function in Excel) the net present value…
MaxiCare Corporation, a not-for-profit organization, specializes in health care for senior citizens. Management is considering whether to expand operations by opening a new chain of care centers in the inner city of large metropolitan areas. For a new facility, initial cash outlays for lease, renovations, net working capital, training, and other costs are expected to be about $18 million. The corporation expects the cash inflows of each new facility in Year 1 to equal zero. Net cash inflows are expected to increase to $5.5 million in each of years 2 and 3; $2.5 million in year 4; and $3.0 million in each of years 5 through 10. The lease agreement for the facility will expire at the end of year 10, and MaxiCare expects the cost to close a facility will pretty much exhaust all cash proceeds from the disposal. Cost of capital for MaxiCare is estimated as 12%. Assume that all cash flows occur at year end. Required: 1. Compute (using the built-in NPV function in Excel) the net present value…
Vigour Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever medicine for individuals who suffer from cardio vascular diseases. The company has to invest in equipment which costs $2,500,000 and will be depreciated under the MACRS system for a 5-year asset class. It is expected to have a scrap value of $700,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Vigour Pharmaceuticals expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new pain-reliever. Expected annual…

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