Question Content Area 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 Puro Equipment Briggs Equipment 1 $320,000 $120,000 2 280,000 120,000 3 240,000 320,000 4 160,000 400,000 5 120,000 440,000 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 14%, compute the net present value of each piece of equipment. Puro equipment: $fill in the blank 1 Briggs equipment: $fill in the blank 2 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 14% discount rate.
Question Content Area
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
| Year | Puro Equipment | Briggs Equipment | ||
| 1 | $320,000 | $120,000 | ||
| 2 | 280,000 | 120,000 | ||
| 3 | 240,000 | 320,000 | ||
| 4 | 160,000 | 400,000 | ||
| 5 | 120,000 | 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 14%, compute the net present value of each piece of equipment.
| Puro equipment: | $fill in the blank 1 |
| Briggs equipment: | $fill in the blank 2 |
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 14% discount rate.
$fill in the blank 3 per year
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