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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. 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: Briggs equipment: Since the NPV of the Briggs equipment is greater than that of the Puro equipment, Briggs should be chosen. The data analytics types are predictive and prescriptive 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

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. 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: Briggs equipment: Since the NPV of the Briggs equipment is greater than that of the Puro equipment, Briggs should be chosen. The data analytics types are predictive and prescriptive 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

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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. 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: 8 Briggs equipment: Since the NPV of the Briggs equipment is greater per year than that of the Puro equipment, Briggs should be chosen. The data analytics types are predictive and prescriptive 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.
Transcribed Image Text: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. 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: 8 Briggs equipment: Since the NPV of the Briggs equipment is greater per year than that of the Puro equipment, Briggs should be chosen. The data analytics types are predictive and prescriptive 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.
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