EBK ACCOUNTING PRINCIPLES
13th Edition
ISBN: 9781119411017
Author: Weygandt
Publisher: WILEY
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Dr. Whitley Avard, a plastic surgeon, had just returned from a conference in which she learned of a new surgical procedure for removing wrinkles around eyes, reducing the time to perform the normal procedure by 50%. Given her patient-load pressures, Dr. Avard is excited to try out the new technique. By decreasing the time spent on eye treatments or procedures, she can increase her total revenues by performing more services within a work period. In order to implement the new procedure, special equipment costing $74,000 is needed. The equipment has an expected life of 4 years, with a salvage value of $6,000. Dr. Avard estimates that her cash revenues will increase by the following amounts:
Year
Revenue Increases
1
$19,800
2
27,000
3
32,400
4
32,400
She also expects additional cash expenses amounting to $3,000 per year. The cost of capital is 12%. Assume that there are no income taxes.
Required:
1. Compute the payback period for the new equipment. Round your…
Dr. Whitley Avard, a plastic surgeon, had just returned from a conference in which she learnedof a new surgical procedure for removing wrinkles around eyes, reducing the time to performthe normal procedure by 50%. Given her patient-load pressures, Dr. Avard is excited to try outthe new technique. By decreasing the time spent on eye treatments or procedures, she can increase her total revenues by performing more services within a work period. In order to implement the new procedure, special equipment costing $74,000 is needed. The equipment has anexpected life of 4 years, with a salvage value of $6,000. Dr. Avard estimates that her cash revenueswill increase by the following amounts:
She also expects additional cash expenses amounting to $3,000 per year. The cost of capital is12%. Assume that there are no income taxes.Required:1. Compute the payback period for the new equipment.2. Compute the ARR. Round the percentage to two decimal places.3. CONCEPTUAL CONNECTION Compute the NPV and…
Dr. Claudia Gomez, a plastic surgeon, had just returned from a conference in which she learned of a new surgical procedure for removing wrinkles around eyes, reducing the time to perform the normal procedure by 50%. Given her patient-load pressures, Dr. Gomez is excited to try out the new technique. By decreasing the time spent on eye treatments or procedures, she can increase her total revenues by performing more services within a work period. In order to implement the new procedure, special equipment costing $88,800 is needed. The equipment has an expected life of 4 years, with a salvage value of $7,200.
Dr. Gomez estimates that her cash revenues will increase by the following amounts:
Year Revenue Increases
1. $23,760
2. $32,400
3. 38,880
4. 38,880
Conceptual Connection: Compute the NPV for the project, using 14% as the IRR.
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