Spiro 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. After-tax cash inflows for the two competingprojects are as follows:Year12345Puro Equipment$320,000280,000240,000160,000120,000Briggs Equipment$120,000120,000320,000400,000440,000Both projects require an initial investment of $560,000. In both cases, assume that the equipment has a life of 5 years with no salvage value.Required:Round present value calculations and your final answers to the nearest dollar.1. Assuming a discount rate of 10%, compute the net present value of each piece of equipment.Puro equipment:Briggs equipment:2. A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $560,000, but this equipment will produce even cash flows over its 5-year life. What must the annual cash flow be for thisequipment to be selected over the other two? Assume a 10% discount rate.per year

Net present value is the present value of future cash flows at the required rate of return for one…

Answered: Spiro Hospital is investigating the…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Spiro 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. After-tax cash inflows for the two competing projects are as follows: Year Puro Equipment Briggs Equipment 1 $320,000 $120,000 2 280,000 120,000 3 240,000 320,000 4 160,000 400,000 5 120,000 440,000 Both projects require an initial investment of $560,000. In both cases, assume that the equipment has a life of 5 years with no salvage value. Required: Round present value calculations and your final answers to the nearest dollar. 1. Assuming a discount rate of 12%, compute the net present value of each piece of equipment. Puro equipment: Briggs equipment: 2. A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $560,000, but this equipment will produce even cash flows over its 5-year life. What must the annual…
Spiro 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. After-tax cash inflows for the two competing projects are as follows: Year Puro Equipment Briggs Equipment 1 $320,000 $120,000 2 280,000 120,000 3 240,000 320,000 4 160,000 400,000 5 120,000 440,000 Both projects require an initial investment of $560,000. In both cases, assume that the equipment has a life of 5 years with no salvage value. Required: Round present value calculations and your final answers to the nearest dollar. 1. Assuming a discount rate of 9%, compute the net present value of each piece of equipment. Puro equipment: $fill in the blank 1 Briggs equipment: $fill in the blank 2 2. A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $560,000, but this equipment will produce even cash flows over…
A firm wants to sponsor a new engineering lab at a local university. This requires $4M to construct the lab, $1.5M to equip it, and $750,000 every 6 years for new equipment. What is the required endowment if the university will earn 8% interest on the funds? Answer: $6,777,957
Utah Enterprises is considering buying a vacant lot that sells for $1.1 million. If the property is purchased, the company's plan is to spend another $5 million today (t = 0) to build a hotel on the property. The after-tax cash flows from the hotel will depend critically on whether the state imposes a tourism tax in this year's legislative session. If the tax is imposed, the hotel is expected to produce after-tax cash inflows of $550,000 at the end of each of the next 15 years, versus $1,100,000 if the tax is not imposed. The project has a 13% cost of capital. Assume at the outset that the company does not have the option to delay the project. Use decision-tree analysis to answer the following questions. What is the project's expected NPV if the tax is imposed? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answer to three decimal places. Negative value, if any,…
MaxiCare Corporation, a not-for-profit organization, specializes in health care for senior citizens. Management is considering whether to expand operations by opening a new chain of care centers in the inner city of large metropolitan areas. For a new facility, initial cash outlays for lease, renovations, net working capital, training, and other costs are expected to be about $18 million. The corporation expects the cash inflows of each new facility in Year 1 to equal zero. Net cash inflows are expected to increase to $5.5 million in each of years 2 and 3; $2.5 million in year 4; and $3.0 million in each of years 5 through 10. The lease agreement for the facility will expire at the end of year 10, and MaxiCare expects the cost to close a facility will pretty much exhaust all cash proceeds from the disposal. Cost of capital for MaxiCare is estimated as 12%. Assume that all cash flows occur at year end. Required: 1. Compute (using the built-in NPV function in Excel) the net present value…
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.
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?
ii) The directors of Komfwe’s Bibbentuckers are considering purchasing a new laundry machinery that would improve the quality and productivity of cleaning processing. The initial investment needed for the machinery is ZMW 120, 000. The cost of capital is 12% from Citizen Economic Empowerment Commission With a new machinery in place, the project is expected to generate the following cash flows, ZMW 20 000 in the first year, ZMW 30 000 in the second year, ZMW 40 000 in the third year, ZMW 50 000 in the fourth year, and ZMW 50 000 in the fifth year. • Calculate he Payback period for the project • Calculate the Net present value for the project • Advice if the project should be accepted under Net present value and payback period to Komfwe's Management board?
MaxiCare Corporation, a not-for-profit organization, specializes in health care for senior citizens. Management is considering whether to expand operations by opening a new chain of care centers in the inner city of large metropolitan areas. For a new facility, initial cash outlays for lease, renovations, net working capital, training, and other costs are expected to be about $15 million. The corporation expects the cash inflows of each new facility in Year 1 to equal zero. Net cash inflows are expected to increase to $1 million in each of years 2 and 3; $2.5 million in year 4; and $3 million in each of years 5 through 10. The lease agreement for the facility will expire at the end of year 10, and MaxiCare expects the cost to close a facility will pretty much exhaust all cash proceeds from the disposal. Cost of capital for MaxiCare is estimated as 12%. Assume that all cash flows occur at year end. Required: 1. Compute (using the built-in NPV function in Excel) the net present value…
Marshall Healthcare System is a for-profit entity and is planning to purchase an MRI and ultrasound equipment for its new imaging center. The equipment will generate $3,000,000 per year in revenues for the next (5) years. The expected operating expense, excluding depreciation, will increase expenses by $1,200,000 per year for the next (5) years. The initial capital investment outlay for the imaging equipment is $5,500,000 and will be depreciated on a straight-line basis to its salvage value of $800,000 at year (5). The cost of capital for this project is 12%. The tax rate for Marshall Healthcare is 40%. a. Compute the NPV and IRR to determine the financial feasibility of this project. b. Should Marshall Healthcare system accept or reject this project based on financial feasibility? Enter ACCEPT or REJECT as your answer.
Shell Camping Gear, , is considering two mutually exclusive projects. Each requires an initial investment of $100,000. John Shell, president of the company, has set a maximum payback period of 4 years. The after-tax cash inflows associated with each project are shown in the following table. Because they are mutually exclusive, Shell must choose Which should the company invest in?
SuperStores, Inc is considering expanding retail operations. Project X involves opening a new store in a nearby city, while Project Y involves upgrading the company's existing retail operations. Both projects require an initial investment of $100,000 and have the same expected life of 5 years and can be depreciated down to zero using straight-line depreciation. The before-tax cash flows of each project are listed below: Year Project X Project Y 1 25,000 10,000 2 25,000 20,000 3 25,000 30,000 4 25,000 40,000 5 25,000 50,000 If your tax rate is 23 percent and your discount rate is 9 percent, compute the after-tax cash flows for each project, then use the cash flow information to calculate the NPV and IRR for both machines. Which do you prefer? Which capital investment would you consider to be riskier? Comment on how your assessment of the riskiness of the two projects would affect your decision to invest?

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