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Net Present Value and Competing Projects For discount factors use Exhibit 12B.1 and Exhibit 12B.2. Spiro Hospital...

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Accounting

  1. Net Present Value and Competing Projects

    For discount factors use Exhibit 12B.1 and Exhibit 12B.2.

    Spiro Hospital is investigating the possibility of investing innew dialysis equipment. Two local manufacturers of this equipmentare being considered as sources of the equipment. After-tax cashinflows for the two competing projects are as follows:

    YearPuro EquipmentBriggs 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 bothcases, assume that the equipment has a life of 5 years with nosalvage value.

    Required:

    Round present value calculations and your final answers to thenearest dollar.

    1. Assuming a discount rate of 10%, compute thenet present value of each piece of equipment.

    Puro equipment:$
    Briggs equipment:$

    2. A third option has surfaced for equipmentpurchased from an out-of-state supplier. The cost is also $560,000,but this equipment will produce even cash flows over its 5-yearlife. What must the annual cash flow be for this equipment to beselected over the other two? Assume a 10% discount rate.
    $ per year

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