Crane Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A...
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Crane Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higherSince the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 6% Option A Option B Initial cost $181,000$283,000 Annual cash inflows $ 73,000 $82,400 Annual cash outflows $ 30,200 $ 25,100 Cost to rebuild (end of year 4 ) $48,000 $ Salvage value $0 $8,300 Estimated useful life 7 years 7 years
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