Thanks a lot. 3. Calexico Hospital plans to invest $1.8 million in a new MRI mac
ID: 2724536 • Letter: T
Question
Thanks a lot. 3. Calexico Hospital plans to invest $1.8 million in a new MRI machine. The MRI will be depreciated over its 5-year economic life to a $200,000 salvage value. Additional revenues attributed to the new MRI will be in the amount of $1.5 million per year for 5 years. Additional operating expenses, excluding depreciation expense, will amount to $1 million per year for 5 years. Over the life of the machine, net working capital will increase by $30,000 per year for 5 years. 015 Laureate Education, Inc. Page 1 of 2
Explanation / Answer
Ans) CALEXICO HOSPITAL Year 0 1 2 3 4 5 Investment $ (1,800,000.00) Revenue $ 1,500,000.00 $ 1,500,000.00 $ 1,500,000.00 $ 1,500,000.00 $ 1,500,000.00 Expenses $ 1,000,000.00 $ 1,000,000.00 $ 1,000,000.00 $ 1,000,000.00 $ 1,000,000.00 Depreciation $ (400,000.00) $ (400,000.00) $ (400,000.00) $ (400,000.00) $ (400,000.00) Salvage Value $ 200,000.00 Income before tax $ 900,000.00 $ 900,000.00 $ 900,000.00 $ 900,000.00 $ 1,100,000.00 Taxes $ 270,000.00 $ 270,000.00 $ 270,000.00 $ 270,000.00 $ 330,000.00 Profit after tax $ 630,000.00 $ 630,000.00 $ 630,000.00 $ 630,000.00 $ 770,000.00 Add: Depreciation $ 400,000.00 $ 400,000.00 $ 400,000.00 $ 400,000.00 $ 400,000.00 Cash Inflow $ 1,030,000.00 $ 1,030,000.00 $ 1,030,000.00 $ 1,030,000.00 $ 1,170,000.00 Working Capital $ (30,000.00) $ (60,000.00) $ (90,000.00) $ (120,000.00) $ (150,000.00) Cash Inflow $ (1,800,000.00) $ 1,000,000.00 $ 970,000.00 $ 940,000.00 $ 910,000.00 $ 1,020,000.00 P.V.Factor @8% 1 0.92593 0.85734 0.79383 0.73503 0.68058 P.V $ (1,800,000.00) $ 925,930.00 $ 831,619.80 $ 746,200.20 $ 668,877.30 $ 694,191.60 NPV $ 2,066,818.90 IRR 46%
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