### Instructions for Financial AnalysisCompute the following for each option:1. **Net Present Value (NPV)**2. **Profitability Index (PI)**3. **Internal Rate of Return (IRR)**#### Calculation Guidelines- **Internal Rate of Return**: To solve for the IRR, experiment with different discount rates until the NPV equals zero.- **Negative Values**: If the NPV is negative, indicate this with a negative sign (e.g., -45) or by using parentheses (e.g., (45)).- **Rounding**: - **NPV and IRR**: Round these values to 0 decimal places (e.g., 125). - **Profitability Index**: Round to 2 decimal places (e.g., 12.50). - **Calculations**: Use 5 decimal places as displayed in the factor table provided.#### Data Table| | Net Present Value | Profitability Index | Internal Rate of Return ||--------------------|-------------------|---------------------|-------------------------|| **Option A** | $ | | % || **Option B** | $ | | % |Use this table to input your calculated values for each option. Brooks Clinic is evaluating the purchase of new heart-monitoring equipment, considering two options:**Option A** has a lower initial cost but necessitates a significant rebuilding expense after 4 years. **Option B** requires no rebuilding expenditure, though it has higher initial and maintenance costs. However, it is of higher quality and is expected to have a salvage value at the end of its useful life.### Financial Estimates:- **Initial cost:** - Option A: $155,000 - Option B: $262,000- **Annual cash inflows:** - Option A: $70,700 - Option B: $80,400- **Annual cash outflows:** - Option A: $32,000 - Option B: $25,700- **Cost to rebuild (end of year 4):** - Option A: $48,300 - Option B: $0- **Salvage value:** - Option A: $0 - Option B: $8,100- **Estimated useful life (years):** - Both options: 7 yearsThe company's cost of capital is 7%. This information will help in evaluating the most economically viable option considering both immediate and long-term financial impacts.

Capital budgeting is a method of determining the profitability of a project using the time value of…

Brooks Clinic is considering investing in new heart-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 7%. Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Option A $155,000 $70,700 $32,000 $48,300 $0 7 years Option B $262,000 $80,400 $25,700 $0 $8,100 7 years

Brooks Clinic is considering investing in new heart-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 7%. Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Option A $155,000 $70,700 $32,000 $48,300 $0 7 years Option B $262,000 $80,400 $25,700 $0 $8,100 7 years

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

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You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $100,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $28,000. The equipment would require a $12,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $22,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar. What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.
p
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