City Hospital, a nonprofit organization, estimatesthat it can save $28,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eyetestingmachine at a cost of $110,000. No terminal disposal value is expected. City Hospital’s required rate ofreturn is 14%. Assume all cash flows occur at year-end except for initial investment amounts. City Hospitaluses straight-line depreciation. Q.What other factors should City Hospital consider in deciding whether to purchase the special-purposeeye-testing machine?
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City Hospital, a nonprofit organization, estimates
that it can save $28,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eyetesting
machine at a cost of $110,000. No terminal disposal value is expected. City Hospital’s required rate of
return is 14%. Assume all
uses straight-line depreciation.
Q.What other factors should City Hospital consider in deciding whether to purchase the special-purpose
eye-testing machine?
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- Chicago Hospital, a taxpaying entity, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye-testing machine at a cost of $135,000. No terminal disposal value is expected. Chicago Hospital's required rate of return is 10%. Assume all cash flows occur at year-end except for initial investment amounts. Chicago Hospital uses straight-line depreciation. The income tax rate is 34% for all transactions that affect income taxes. (Click the icon to view the Future Value of $1 factors.) (Click the icon to view the Future Value of Annuity of $1 factors.) (Click the icon to view the Present Value of $1 factors.) (Click the icon to view the Present Value of Annuity of $1 factors.) Read the requirements. Requirement 1. Calculate the following for the special-purpose eye-testing machine: Net present value (NPR) (Round interim calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a…A hospital is considering the possibility of two new purchases: new X-ray equipment and new biopsy equipment. Each project would require an investment of P750,000. The expected life for each is 5 years with no expected salvage value. The net cash inflows associated with the two independent projects are as follows: X-ray Equipment Year Biopsy Equipment 1 P 75,000 2 3 4 75,000 525,000 600,000 675,000 What is the net present value of each project assuming a required rate of return of 12%? 5 c. X-ray: P54,312 Biopsy: P512,389 , Not Selected Correct answer: P375,000 b. X-ray: P55,821 Biopsy: P514,766 a. X-ray: P56,378 Biopsy: P499,818 150,000 300,000 150,000 75,000A hospital wants to buy a new MRI machine for $45,000. The annual revenue from the machine is estimated at $18,000 per year while maintenance costs per year are calculated to be $ 6,000. The salvage value at the end of the machine’s six-year operational life is $12,000. If the hospital’s MARR is 10% per year, should this investment be undertaken? (Use PW-Method).
- PICedar City Public Transportation is considering adding a new bus route. To do so, the entity would be required to purchase a new $660,000 bus, which would have a 10-year life and no salvage value. If the new bus is purchased, Cedar City Public Transportation’s managers expect net cash inflows from bus ridership would rise by $91,000 per year for the life of the bus. Cedar City Public Transportation uses a 9 percent required rate of return for evaluating capital projects.a. Compute the profitability index of the bus investment.Note: Round amount to two decimal points (i.e. round 4.555 to 4.56).b. Should Cedar City Public Transportation buy the new bus? c. What is the minimum acceptable value for the profitability index for an investment to be acceptable?A clinic is considering the possibility of two new purchases: new MRI equipment and new biopsy equipment. Each project requires an investment of $430,000. The expected life for each is five years with no expected salvage value. The net cash inflows associated with the two independent projects are as follows: Year MRI Equipment Biopsy Equipment 1 $221,000 $49,000 2 111,000 60,000 3 157,000 104,000 4 91,000 212,000 5 46,000 244,000 The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems. Required: Compute the net present value of each project, assuming a required rate of 10 percent. If the NPV is negative, enter your answer as a negative value.Water Cutter Co. is considering purchasing a system to assist inw ater jet manfacturing. The system costs $200,000. It has an expected life of 7 years, at which time its salvage value will be $9,500. Operating and maintenance expenses are estimaed to be $20,000 per year. If the system is purchased, additional revenues will be $40,000 per year. Water Cutter Co. must borrow half of the purchases price. The bank as agreed to three equal annual payments, with the first payment due at the end of year 1. The loan interest rate i 16% compounded annually. Water Cutter Co's MARR is 15% compounded annually. 1. Calculate the loan payment amount. 2. Calculate the present worth of the investment. 3. Based on the present worth you calculated, should Water Cutter Co. purchase the system? Why or why not? Water Cutter Co. is considering purchasing a system to assist inw ater jet manfacturing. The system costs $200,000. It has an expected life of 7 years, at which time its salvage value will be…
- Water Cutter Co. is considering purchasing a system to assist inw ater jet manfacturing. The system costs $200,000. It has an expected life of 7 years, at which time its salvage value will be $9,500. Operating and maintenance expenses are estimaed to be $20,000 per year. If the system is purchased, additional revenues will be $40,000 per year. Water Cutter Co. must borrow half of the purchases price. The bank as agreed to three equal annual payments, with the first payment due at the end of year 1. The loan interest rate i 16% compounded annually. Water Cutter Co's MARR is 15% compounded annually. 1. Calculate the loan payment amount. 2. Calculate the present worth of the investment. 3. Based on the present worth you calculated, should Water Cutter Co. purchase the system? Why or why not?The Parkview Hospital is considering the purchase of a new autoclave. This equipment will cost $150,000. This asset will be depreciated using an MACRS (GDS) recovery period of three years. Use this information to solve, The BV at the end of the second year is (a) $27,771 (b) $41,667 (c) $116,675 (d) $33,325A company is intending to invest in a capital budgeting project to manufacture a medical testing device and has projected the following sales: Year 1 Year 2 Year 3 Year 4 Year 5 50,000 66,400 81,200 68,500 54,500 The installed cost of the new assets will be $18,500,000 which will be depreciated using the 7-year MACRS schedule. The assets will have a salvage value of $3,700,000. Initial NWC requirements are $1,500,000 and additional working capital needs are estimated to be 15% of the projected sales increases for the following year. Total fixed costs are $2,000,000 per year. The medical device has a selling price of $300 per unit and variable production costs are $175. The firm has a marginal tax rate of 35% and a required rate of return of 18%. Analyze this project and give your recommendation as to whether they should invest in it or…
- Tex-Exs Medical Hospital, a for profit entity, is considering a new ortho center. Related information is given below: Cost of equipment $ 1,500,000 $ 3,500,000 Cost of Land Salvage value of equipment 25,000 Expected annual revenues Total annual operating expenses $ 3,750,000 $ 2,545,000 Life of equipment in years Cost of capital for the project 7% Applicable tax rate 25% Calculate the Net Present Value and IRR of the proposed Center and make your Reccommendation.Athena Books Company is contemplating the installation of a wastewater recycling system. The amount to be invested in this system is $400,000. The system is expected to last 8 years and has no salvage value. Which of the following situations supports the installation of the recycling system? Assume the present value factor for an annuity of $1 at 10% for 8 periods is 5.3349 and the present value factor for $1 at 10% for 8 periods is 0.4665. The total cash flow savings expected from the recycling system is $700,000. The annual maintenance cost for the system is $40,000. The annual maintenance cost for the system is equal to the cost of the existing water system. The recycling system will yield a savings of $78,000 per year.Briggs-Gridley Memorial Hospital, a non-taxpaying entity, is starting a new inpatient heart center on its third floor. The expected patient volume demands will generate $5,000,000 per year in revenues for the next 5 years. The new center will incur operating expenses, excluding depreciation, of $3,000,000 per year for the next 5 years. The initial cost of building and equipment is $7,000,000. Straight-line depreciation is used to estimate depreciation expense, and the building and equipment will be depreciated over a 5 year life to its salvage value of $800,000. The cost of capital for this project is 10%. Compute the NPV to determine the financial feasibility of this project. Compute the IRR to determine the financial feasibility of this project. Compute the NPV to determine the financial feasibility of this project if Briggs-Gridley was a tax-paying entity with a tax rate of 30%. Compute the IRR to determine the financial feasibility of this project if Briggs-Gridley was a…