Question

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 $320,000 1 $120,000 280,000 120,000 2 240,000 320,000 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 the nearest dollar. 1. Assuming a discount rate of 16%, compute the net present value of each piece of equipment. 223,206 X Puro equipment: 268,044 X Briggs equipment:

Answer 1

Puro Equipment :$223,153

Briggs Equipment:$267,975

Year	Puro Equipment	Dicounting factor using 16 %	Present Value
0	$          (560,000)	1.0000	$                                 (560,000)
1	$           320,000	0.8620	275,840
2	$           280,000	0.7432	208,085
3	$           240,000	0.6406	153,744
4	$           160,000	0.5522	88,352
5	$           120,000	0.4761	57,132
			$                                  223,153
Year	Briggs Equipment	Dicounting factor using 16 %	Present Value
0	$          (560,000)	1.0000	$                                 (560,000)
1	$           120,000	0.8620	103,440
2	$           120,000	0.7432	89,179
3	$           320,000	0.6406	204,992
4	$           400,000	0.5522	220,880
5	$           440,000	0.4761	209,484
			$                                  267,975