Question

A Saudi Arabian hospital bought a new medical laser machine for 2,812,500 Saudi riyals (SAR). The machine will generate a cashflow of 562,500 SAR for six years, which is the expected useful life starting Year 1. The cost of capital is 8 percent. The expected salvage value for each year is shown below:

Year	Salvage Value (in Saudi riyals - SAR)
0	2,812,500
1	2,250,000
2	1,687,500
3	937,500
4	375,000
5	93,750
6	0

Using NPV, determine at what year the hospital should dispose of the equipment. Please make certain that you show your calculations. Submit your findings in a proposal to the hospital.

Your proposal should include the following components:

• A one-page discussion identifying when the equipment should be disposed of based on NPV.
• The calculations of NPV in an Excel spreadsheet which supports your position. You must show all your calculations for credit.

Answer 1

New Microsoft Excel Worksheet Excel (Product Activation Failed) X Sign in FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW DEVELOPER A B C D E F G Н K M P Q R S 5 6 Given 7 Cost of Laser machine 2812500 CF/year 8 562500 Expected useful life from year 1 9 Full-screen Snin 10 COC 8% 11 Year Particulars 12 1 2 4. 6 Out flow 13 -2812500 Inflow present value factor @ 8 % PV of CF 14 562500 562500 562500 562500 562500 0.63017 562500 0.92592593 0.85733882 0.79383224 0.73502985 446531 15 0.6805832 1 354470 16 -2812500 482253 520833 413454 382828 Sum 17 -2812500 2600370 NPV 18 5412870 2600370-2812500 Conclusion 19 SINCE NPV is negative it is not advisable to proceed for the project 20 Disposal value PV of Disp. Value 2812500 1687500 21 2250000 375000 93750 937500 0 22 2812500 2083333 1446759 63805 744218 275636 0 23 Year O 2812500 Year 3 24 Year 2 Year 5 Year 6 Year 1 Year 4 25 Year 0 0 0 0 0 0 Year 1 520833 482253 26 520833 520833 520833 520833 520833 482253 27 Year 2 0 2250000 482253 482253 482253 Year 3 28 1446759 446531 446531 0 446531 446531 29 Year 4 413454 413454 0 744218 413454 Year 5 382828 30 382828 0 275636 31 Year 6 0 63805 354470 2449846 2309704 Total CF 32 2812500 2138708 2770833 2193835 2600370 -2812500 Cost of L Machine 33 -2812500 -2812500 -2812500 -2812500 -2812500 -2812500 34 NPV -673792 -212130 0 -41667 -362654 -618665 -502796 35 Disposing machine at any year is a loss to the hospital it is beneficial to reject the proposal 36 Conclusion if it is mandatory to purchase the project then it is beneficial to sell the machine in year 1 Activate Windows Go to Settingste-activate Wineew 37 being the year with least negative NPV Ф Sheet1 READY +90% EB 09:18 PM е x x A 01-11-2019 x O