Compute the net present value of each piece of equipment

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Question: Net Present Value and Competing Projects Wilburton 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. Aftertax cash inflows for the two competing projects are as follows:

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Both projects require an initial investment of $700,000. In both cases, assume that the equipment has a life of five years with no salvage value.

Required: 1. Assuming a discount rate of 12 percent, compute the net present value of each piece of equipment.

2. A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $700,000, but this equipment will produce even cash flows over its five-year life. What must the annual cash flow be for this equipment to be selected over the other two? Assume a 12 percent discount rate.

Reference no: EM131697733

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