Net Present Value and Competing Projects 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 16%, compute the net present value of each piece of equipment. Puro equipment: $fill in the blank  Briggs equipment: $fill in the blank  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. $fill in the blank, per year

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Chapter1: Financial Statements And Business Decisions
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Net Present Value and Competing Projects

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 16%, compute the net present value of each piece of equipment.

Puro equipment: $fill in the blank 
Briggs equipment: $fill in the blank 

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.


$fill in the blank, per year

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