Solve this general accounting question Santa Cruz Community Hospital is considering investing $90,000in new laundry equipment to replace its present equipment whichis completely depreciated and outmoded. An alternative to thisinvestment is a long-term contract with a local firm to perform thehospital's laundry service. It is expected that the hospital wouldsave $20,000 per year in operating costs if the laundry service wereperformed internally. The new laundry equipment has an expectedlife of 6 years with zero salvage value. Santa Cruz can borrow orinvest money at 8%. What is the NPV of investing in laundryequipment?

Step 1: Define Net Present Value (NPV)The net present value of a project represents the net worth…

Answered: Santa Cruz Community Hospital is…

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter26: Capital Budgeting (capbud)

Section: Chapter Questions

Problem 5R

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What is the npv of investing in laundry equipment?
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A hospital wants to buy a new MRI machine for $45,000. The annual revenue from the machine is estimated at $18,000 per year while maintenance costs per year are calculated to be $ 6,000. The salvage value at the end of the machine’s six-year operational life is $12,000. If the hospital’s MARR is 10% per year, should this investment be undertaken? (Use PW-Method).
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Two locations are considered for a new public small hospital. Location A would require an investrment of $3.4 million and $55,000 per ycar to maintain. Location B would cost $4.8 million to construct. The operating cost of location B will be $43,000 per year. The benefits will be $550,000 per year at location A and 5750000 at location B The disbenefits associated with each location are $35,000 per year for location A and $45,000 per year for location B. Assame the hospital will be maintained indefinitely Use an interest rate of 12% per year to determine which location, if either, should be selected on the basis of the BC method.
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Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $220,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $13,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $42,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow 1/2 of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to 3 equal annual payments, with the 1st payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics' MARR is 10% compounded annually. Part a What is the annual worth of this investment? $
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Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $5 million to set up and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $12 million during this year and the capital cost allowance will be another $3 million. THSI will require no working capital for this investment. THSI's marginal tax rate is 35%. Assume that THSI's cost of capital for this project is 15%. The net present value (NPV) of this temporary housing project is closest to: $435,000 -$650,000 $1,960,000 -$435,000 $1,250,000
Diemia Hospital has been considering the purchase of a new xray machine. The existing machine is operable for five more years and will have a zero disposal price. If the machine is disposed now, it may be sold for $150,000. The new machine will cost $640,000 and an additional cash investment in working capital of $75,000 will be required. The new machine will reduce the average amount of time required to take the xrays and will allow an additional amount of business to be done at the hospital. The investment is expected to net $50,000 in additional cash inflows during the year of acquisition and $160,000 each additional year of use. The new machine has a five year life, and zero disposal value. These cash flows will generally occur throughout the year and are recognized at the end of each year. Income taxes are not considered in this problem. The working capital investment will not be recovered at the end of the asset's life. What is the net present value of the investment,…
Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $4.87 million to setup and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $12 million during this year and depreciation expense will be another $3 million. THSI will require no working capital for this investment. THSI's marginal tax rate is 35%. Assume that THSI's cost of capital is 14.6% p.a. Compute the NPV of the temporary housing facility to the nearest dollar
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