Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for int ate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is egative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to lecimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places a lisplayed in the factor table provided.) Option A Option B $ $ Net Present Value Profitability Index Internal Rate of Return % %
Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for int ate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is egative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to lecimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places a lisplayed in the factor table provided.) Option A Option B $ $ Net Present Value Profitability Index Internal Rate of Return % %
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...
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Question
100%
![(a)
Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal
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 0
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.)
Option A
Option B
$
$
Net Present Value
Profitability Index
Internal Rate of Return
%
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa7b0925a-62a5-4510-9cb9-3fd1f0169fe6%2F9f603cae-b830-499d-9596-9a6e172d0450%2F5uuazgl_processed.png&w=3840&q=75)
Transcribed Image Text:(a)
Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal
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 0
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.)
Option A
Option B
$
$
Net Present Value
Profitability Index
Internal Rate of Return
%
%
![Carla Vista 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 5%.
Initial cost
Annual cash inflows
Annual cash outflows
Cost to rebuild (end of year 4)
Salvage value
Estimated useful life
Option A
$194,000
$72,600
$28,100
$51,200
$0
7 years
Option B
$291,000
$82,000
$25,100
$0
$9,000
7 years](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa7b0925a-62a5-4510-9cb9-3fd1f0169fe6%2F9f603cae-b830-499d-9596-9a6e172d0450%2Fbzmp1fe_processed.png&w=3840&q=75)
Transcribed Image Text:Carla Vista 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 5%.
Initial cost
Annual cash inflows
Annual cash outflows
Cost to rebuild (end of year 4)
Salvage value
Estimated useful life
Option A
$194,000
$72,600
$28,100
$51,200
$0
7 years
Option B
$291,000
$82,000
$25,100
$0
$9,000
7 years
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