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NPV A clinic is considering the possibility of two new purchases: new MRI equipment and new biopsy equipment. Each project requires an investment of $425,000. 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: Required: Compute the net present value of each project, assuming a required rate of 12 percent.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 19, Problem 11E
Textbook Problem
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NPV

A clinic is considering the possibility of two new purchases: new MRI equipment and new biopsy equipment. Each project requires an investment of $425,000. 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:

Chapter 19, Problem 11E, NPV A clinic is considering the possibility of two new purchases: new MRI equipment and new biopsy

Required:

Compute the net present value of each project, assuming a required rate of 12 percent.

To determine

Calculate the net present value of each project of a clinic.

Explanation of Solution

Net present value method (NVP): Net present value method is the method which is used to compare the initial cash outflow of investment with the present value of its cash inflows. In the net present value, the interest rate is desired by the business based on the net income from the investment, and it is also called as the discounted cash flow method.

Calculate the net present value of each project of a clinic as follows:

MRI Equipment:

YearCash inflowPresent value factor @12%Present value
1$ 200,0000.893$ 178,600
2$ 100,0000.797$ 79,700
3$ 150,0000.712$ 106,800
4$ 100,0000.636$ 63,600
5$ 50,0000...

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Chapter 19 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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