2 and 4 ostal has been considering the purchase of a new x-ray machine. The exis

Question

2 and 4 ostal has been considering the purchase of a new x-ray machine. The existing machine iay pe sold for $170,000. The new machine will cost $700.000 and an addiftional cash investment or three more years and will have a zero disposal price. If the machine is disposed now working capital of $115,000 will be required. The new machine will reduce the average amount of hospital. The investmentis expected to net $150,000 in additional cash inflows during the year of at the end of each year, Income taxes are not considered in this problem.The working capita me required to take the x -rays and will allow an additional amount of business to be done at the acouisiton and $180,000 each aditional year of use. The new machine has a three-year life, and zero disposal value. These cash flows will generally occur throughout the year and are recognized nvestment will not be recovered at the end of the asset's life What is the net present value of the investment, assuming the required rate of return is 9%? Would he hospital want to purchase the new machine? a. $93,480,yes b.$(93 480y,yes C $(198,980); no d. $/249 440),n

Explanation / Answer

As there is loss in this proposal, therefore hospital should not purchase this machine.

Particulars Amount PV Factor Present Value Additional Cash Inflows: Year 1 $150,000 0.9174 $137,610 Year 2 $180,000 0.8417 $151,506 Year 3 $180,000 0.7722 $138,996 Total (A) $428,112 Net Cash Outflows: New Machine Cost $700,000 Additional Working Capital $115,000 Sale value of old machine ($170,000) Total (B) $645,000 NPV (A-B) ($216,888)

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.