Solution
Spiro Hospital
Puro Equipment |
$345,904 |
Briggs Equipment |
$467,512 |
Computations:
Puro Equipment |
|||
Year |
Cash Flow |
Discount Factor at 9% (P/F) |
Present Value |
0 |
($560,000) |
1 |
($560,000) |
1 |
$320,000 |
0.9174 |
$293,568 |
2 |
$280,000 |
0.8417 |
$235,676 |
3 |
$240,000 |
0.7722 |
$185,328 |
4 |
$160,000 |
0.7084 |
$113,344 |
5 |
$120,000 |
0.6499 |
$77,988 |
NPV |
$345,904 |
||
Briggs Equipment |
|||
Year |
Cash Flows |
Discount Factor at 9% (P/F) |
Present Value |
0 |
($560,000) |
1 |
($560,000) |
1 |
$120,000 |
0.9174 |
$110,088 |
2 |
$120,000 |
0.8417 |
$101,004 |
3 |
$320,000 |
0.7722 |
$247,104 |
4 |
$400,000 |
0.7084 |
$283,360 |
5 |
$440,000 |
0.6499 |
$285,956 |
NPV |
$467,512 |
Net present value = present value of cash inflows – present value of cash outflows
NPV = [total annual cash inflows for 5 years x (3.89)] – ($560,000 x 1.000)
Since, Briggs equipment has higher NPV, the annual cash inflows for new equipment must exceed the NPV of Briggs equipment to get selected.
Considering the NPV of Briggs equipment,
$467,512 = Cash flows x 3.89 - $560,000
Cash flows x 3.89 = $1,027,512
Cash flows = $1,027,512/3.89= $264,142
Desired annual cash flows must be higher than $264,142.
Hence, the annual cash flow for the third equipment must be higher than $264,142 to get selected over the other two.
please double check your answers, thanks! Net Present Value and Competing Projects For discount factors use...
Net Present Value and Competing Projects For discount factors use Exhibit 12B.1 and Exhibit 12B.2. 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....
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 a Follows: Year Puro Equipment Briggs Equipment $320,000 $120,000 280,000 AN 120,000 320,000 240,000 160,000 400,000 120,000 440,000 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...
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 $120,000 280,000 120,000 240,000 320,000 160,000 400,000 120,000 440,000 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...
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