Round present value calculations and your final answers to the nearest dollar. 1. Assuming a discount rate of 12%, compute the net present value of each piece of equipment. Puro equipment: Briggs equipment: 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 12% discount rate.
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 12%, compute the
| Puro equipment: | |
| Briggs equipment: |
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
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