Net Present Value and Competing Projects For discount factors use Exhibit 128.1 and Exhibit 128.2. Spiro Hospital investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the equipment. After-tax cash inflows for the two competing projects. as follows: Year 1 2 3 Puro Equipment $320,000 280,000 240,000 Briggs Equipment $120,000 120,000 320,000
Net Present Value and Competing Projects For discount factors use Exhibit 128.1 and Exhibit 128.2. Spiro Hospital investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the equipment. After-tax cash inflows for the two competing projects. as follows: Year 1 2 3 Puro Equipment $320,000 280,000 240,000 Briggs Equipment $120,000 120,000 320,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
For some reason I keep getting this question wrong and I'm not sure what I am doing wrong. I attached what I did on Excel.

Transcribed Image Text:1
HN3456789
345
2 Year
A
10
B
C
Puro
Cash Flow Discount Rate
1
0 -560000
1 $320,000
2 280,000
240,000
160,000
120,000
0.86207
0.74316
0.64066
0.55229
0.47611
D
Present Value
-560000
$
$275,862
$208,085
$153,758
$88,366
$57,133
223,205
E
F
Year
G
Cash Flow
-560000
0
1 $120,000
2 120,000
3
320,000
4 400,000
5 440,000
H
Discount Rate Present Value
1
-560000
103448
89179
205011
220916
209488
0.86207
0.74316
0.64066
0.55229
0.47611
I
$
268,043

Transcribed Image Text:Net Present Value and Competing Projects
For discount factors use Exhibit 12B.1 and Exhibit 12B.2.
Spiro Hospital is investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the equipment. After-tax cash inflows for the two competing projects are
as follows:
Year
1
2
3
4
5
Puro Equipment
$320,000
280,000
240,000
160,000
120,000
Briggs Equipment
$120,000
120,000
320,000
400,000
440,000
Both projects require an initial investment of $560,000. In both cases, assume that the equipment has a life of 5 years with no salvage value.
Required:
Round present value calculations and your final answers to the nearest dollar.
1. Assuming a discount rate of 16%, compute the net present value of each piece of equipment.
Puro equipment:
$223,205 X
Briggs equipment:
$268,043 X
2. A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $560,000, but this equipment will produce even cash flows over its 5-year life. What must the annual cash flow be for this equipment
to be selected over the other two? Assume a 16% discount rate.
per year
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