rooks Clinic is considering investing in new heart-monitoring equipment. It has

Question

rooks 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%. Compute the (1) net present value, (2) profitability index, and (3) internal rate of return for each option.

Explanation / Answer

Workigs;

Schedule o Net Pesent Value

     20,126.00

Schedule Of IRR of Both option:

Net Present Value ($) Profitabilty Index Internal Rate of return (%) Option A                            20,126.00                               1.11                                                 9.03 Option B                            36,596.00                               1.15                                                 9.62

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