Please help me to solve this problem Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure,but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 5%.Initial costAnnual cash inflowsAnnual cash outflowsCost to rebuild (end of year 4)Salvage valueEstimated useful lifeClick here to view the factor table.(a)Option A$196,000$72,500$28,000$49,100$07 yearsOption B$291,000$82,500$25,600$0$8.5007 yearsCompute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value isnegative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to O decimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places asdisplayed in the factor table provided.)

Given, The Option A and Option B. The cost of capital is 5%

Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding ex but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Option A Option B $196,000 $291,000 $72.500 $82,500 $28,000 $25.600 $49,100 $0 7 years $0 $8.500 7 years

Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding ex but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Option A Option B $196,000 $291,000 $72.500 $82,500 $28,000 $25.600 $49,100 $0 7 years $0 $8.500 7 years

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 7%. Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Option A $155,000 $70,700 $32,000 $48,300 $0 7 years Option B $262,000 $80,400 $25,700 $0 $8,100 7 years
Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 5%. Option A Option B Initial cost $193.000 $285,000 Annual cash inflows $72,900 $82.500 Annual cash outflows $28,700 $26,700 Cost to rebuild (end of year 4) $50.700 S0 Salvage value SO $7.700 Estimated useful life 7 years 7 years Click here to view PV table. (a) Compute the (1) net present value, (2) profitability index and (3) Internal rate of return for each option. (HintE To solve for internal rate of return, experiment with alternative discount rates to arrive at a net…
Sandhill Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 6%. Option A Option B Initial cost $170,000 $274,000 Annual cash inflows $72,200 $82,200 Annual cash outflows $31,400 $26,700 Cost to rebuild (end of year 4) $50,100 $0 Salvage value $0 $8,200 Estimated useful life 7 years 7 years Click here to view PV table. (a) * Your answer is incorrect. Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount…
Carla Vista Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 5%. Option A Option B Initial cost $194,000 $291,000 Annual cash inflows $72,600 $82,000 Annual cash outflows $28,100 $25,100 Cost to rebuild (end of year 4) $51,200 $0 Salvage value $0 $9,000 Estimated useful life 7 years 7 years Click here to view the factor table. (a) Your answer is partially correct. Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with…
Carla Vista Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 5%. Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Option A $194,000 $72,600 $28,100 $51,200 $0 7 years Option B $291,000 $82,000 $25,100 $0 $9,000 7 years
Cullumber Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 5%. Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Click here to view the factor table. (a) Your answer is partially correct. Option A Option A $170,000 $70,200 $30,700 $49,000 Option B $ $0 7 years $ Compute the (1) net present value. (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount rates to…
Cullumber Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 5%. Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Click here to view the factor table Your answer is partially correct Option A Option B Option A $170,000 $70,200 $30,700 $49,000 $ Compute the (1) net present value. (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount rates to arrive at a net present…
Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers for present value and IRR to 0 decimal places, e.g. 125 and round profitability index to 2 decimal places, e.g. 12.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Option A Option B tA $ $ Net Present Value 103345 Profitability Index 1.55 Internal Rate of Return do % %
Garden-Grow Products is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 3.) Project cost of capital (r) Net investment in fixed assets (basis) Required new working capital Straight-line deprec. rate Sales revenues, each year Operating costs (excl. deprec.), each year Tax rate a. $31,573 b. $30,069 c. $36,550 d. $34,809 e. $33,152 10.0% $75,000 $15,000 33.333% $75,000 $25,000 25.0%
Dwight Donovan, the president of Donovan Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a măchine that will enable factory automation; the machine is expected to have a useful life of fouryears and no salvage value. Project B supports a rano oOB and for Project B are $160,000. The operating the current equipment. Initial cash expenditures for Project A are S annual expected cash inflows are $126,000 for Project A and $52,800 for Projęct B. Bọth investménts are expected to provide cash flow benefits for the next four years. Donovan Enterprises' desired rate of return is 8 percent. program that will improve the skills of employees Page 472 Required 2 Compute the net present value of each project. Which project should be adopted based on the net present value approach? Round your computations to two decimal points. D. Compute the approximate internal rate of return of each…
Magno - pro is considering buying a new water treatment system for its plant in Austin, Texas. The investment proposal passed the initial screening tests (payback and accounting rate of return) so the company now wants to analyze the proposal using the discounted cash flow methods. The water treatment system costs $52,800, has a eight-year life, and has no residual value. The estimated net cash inflows from environmental cleanup savings are $11,000 per year over its life. The company's required rate of return is 16%. E (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements. Requirement 1. Compute the water treatment system's NPV. (Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative NPV.) Annuity PV Factor (i=16%, n=8) Net Cash Years Inflow Present Value Years 1-8 Present value of annuity Year 0 Investment Net present value Requirements - X 1.…
Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a new equipment. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the projects are provided below. Required:a) Identify which project should the company accept based on NPV method. b) Identify which project should the company accept based on simple pay back method if the payback criteria is maximum 2 years. c) Which project Giant Machinery should choose if two methods are in conflict.

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