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Brooks 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%. Option A Option B Initial cost $170,000 $274,000 Annual cash inflows $72,200 $82,200 Annual cash outflows $31,400 $26,700 Cost to rebuild (end of year 4) $50,100 $0 Salvage value $0 $8,200 Estimated useful life 7 years 7 years Click here to view PV table. Click here to view PV of Annuity table. Compute the (1) net present value and (2) internal rate of return for each option. (Hint: To solve for internal rate of return, experiment with alternative discount rates to arrive at a net present value of zero.) (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answers to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net Present Value Internal Rate of Return Option A $ % Option B $ % Link to Text Link to Text Which option should be accepted? should be accepted.
Determine The economic service life of the equipment and associated annual worth.
Explain how movements in the stock markets can affect the economy and the business cycle.
Studying historical stock price movements to identify mispriced stocks:
You are saving to buy a $193,000 house. There are two competing banks in your area, both offering certificates of deposit yielding 7.8 percent. How long will it take your initial $110,000 investment to reach the desired level at First Bank, which pay..
Suppose a five-year $1,000 bond with annual coupons has a price of $ 902.27 and a yield to maturity of 5.5%. What is the bond's coupon rate?
Your company does not expect to pay taxes for the next several years, but the leasing company will pay taxes.
Discuss how externalities may prevent market equilibrium and the various governments policies used to remedy the inefficiencies in markets caused.
Peir Inc. is considering a project that contributes $10,000 at the end of the first year and $5000 at the end of the second year? The initial cost of the project is $8,000. What is the net present value of the project at a 10% discount rate?
Only the tax effect of the research expenses should be included in the analysis. How should the $5,000 spent last year be handled?
Do you agree that this is the appropriate interpretation of a Reverse Acquisition?
Twice Shy Industries has a debt−equity ratio of 1.8. Its WACC is 9.1 percent, and its cost of debt is 7.1 percent. The corporate tax rate is 35 percent. What is the company’s cost of equity capital? What is the company’s unlevered cost of equity capi..
The total income generated from their investments was $220,000 after all expenses were paid. What is the net profitability in dollars?
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