Assuming that hospital is a non tax paying entity

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Reference no: EM131894187

Calexico Hospital plans to invest in a new MRI. The cost of the MRI is $1,800,000. The machine has an economic life of five years, and it will be depreciated over a five-year life to a $200,000 salvage value. Additional revenues attributed to the new machine will amount to $1,500,000 per year for five years. Additional operating costs, excluding depreciation expense, will amount to $1,000,000 per year for five years. Over the life of the machine, net working capital will increase by $30,000 per year for five years.

a. Assuming that hospital is a non tax paying entity, what is the project's NPV at a discount rate of 8%, and what is the project's IRR? Is the decision to accept or reject the same under either capital budgeting method, or does it differ?

b. Assuimg that this hospital is a tax paying entity and its tax rate is 30%, what is the project's NPV at a cost of capital of 8%, and what is the project's IRR? Is the decision to accept or reject the same under either capital budgeting method, or does it differ?

Reference no: EM131894187

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