3. Assume the following compounding discounting questions assume year end each f

Question

3. Assume the following compounding discounting questions assume year end each flow. The Chicago hope hospital purchased a mri machine for $12 million dollars making a 6 year loan at 8%. If the above MRI machine which costs $12 million comes with a service charge for an additional amount of $20,000 each year for 6 years. What is the present value of cash a. outflow for the MRI machine (use 7% as the discount rate)? Apple Softw b. If the salvage value of the machine is $100,000 sik years from now. What is the present value of the salvage value of the MRI machine (use 7% as the discount rate)?

Explanation / Answer

First of all we need to find Installment of the loan

Installment = loan/PVIFA(8%,6years)

=12,000,000/4.6229

=2595784.63$

a)Statemnent showing present value of cash outflow

b)Statemnent showing present value of cash outflow

Year EMI Service charge Total PVIF @ 7% PV 1 2595784.63 20000 2615784.63 0.9346 2444659 2 2595784.63 20000 2615784.63 0.8734 2284728 3 2595784.63 20000 2615784.63 0.8163 2135259 4 2595784.63 20000 2615784.63 0.7629 1995570 5 2595784.63 20000 2615784.63 0.7130 1865018 6 2595784.63 20000 2615784.63 0.6663 1743008 Present value of cash out flow 12468241

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