%24 %24 Cullumber Clinic is considerinz investing in newheart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimateS were made of the cash flows. The company's cost of capital is 5%. Option A Option B Initial cost Annual cash inflows 570,200 583,000 Annual cash outflows 0090 Cost to rebuild (end of year 4) Salvage value 0080 Estimated useful life 7years 7years Click here to view PV table. (a) Compute the(1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for iternal. rate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). Round answers for present value and IRR to O decimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net Present Value Profitability Index Internal Rate of Return Option A Option B 56 eTextbook and Media Attempts: 0 of 3 used Submit Answwer (b) The parts of this question must be completed in order. This part will be available when you complete the part above.
%24 %24 Cullumber Clinic is considerinz investing in newheart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimateS were made of the cash flows. The company's cost of capital is 5%. Option A Option B Initial cost Annual cash inflows 570,200 583,000 Annual cash outflows 0090 Cost to rebuild (end of year 4) Salvage value 0080 Estimated useful life 7years 7years Click here to view PV table. (a) Compute the(1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for iternal. rate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). Round answers for present value and IRR to O decimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net Present Value Profitability Index Internal Rate of Return Option A Option B 56 eTextbook and Media Attempts: 0 of 3 used Submit Answwer (b) The parts of this question must be completed in order. This part will be available when you complete the part above.
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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Question
Unit VIII Question 18 part a
Transcribed Image Text:%24
%24
Cullumber Clinic is considerinz investing in newheart-monitoring equipment. It has two options. Option A would have an initial lower
cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its
maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the
end of its useful life. The following estimateS were made of the cash flows. The company's cost of capital is 5%.
Option A
Option B
Initial cost
Annual cash inflows
570,200
583,000
Annual cash outflows
0090
Cost to rebuild (end of year 4)
Salvage value
0080
Estimated useful life
7years
7years
Click here to view PV table.
(a)
Compute the(1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for iternal.
rate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is
negative, use either a negative sign preceding the number eg-45 or parentheses eg (45). Round answers for present value and IRR to O
decimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places as
displayed in the factor table provided.)
Net Present Value
Profitability Index
Internal Rate of Return
Option A
Option B
56
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(b)
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