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Compute the NPV and IRR

Compute the NPV and IRR

Essentials Of Investments
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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Marshall Healthcare System is a for-profit entity and is planning to purchase an MRI and ultrasound equipment for its new imaging center.  The equipment will generate $3,000,000 per year in revenues for the next (5) years.  The expected operating expense, excluding depreciation, will increase expenses by $1,200,000 per year for the next (5) years.  The initial capital investment outlay for the imaging equipment is $5,500,000 and will be depreciated on a straight-line basis to its salvage value of $800,000 at year (5).  The cost of capital for this project is 12%.  The tax rate for Marshall Healthcare is 40%. 

a.  Compute the NPV and IRR to determine the financial feasibility of this project.

b.  Should Marshall Healthcare system accept or reject this project based on financial feasibility?  Enter ACCEPT or REJECT as your answer.

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