Net Present Value and Competing Projects For discount factors use Exhibit 12B.1 and Exhibit 12B.2....
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Accounting
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 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:
Download Excel spreadsheet
Round present value calculations and your final answers to the nearest dollar.
1. Assuming a discount rate of 8%, compute the net present value of each piece of equipment.
Line Item Description
Amount
Puro equipment:
$ 366,146 is wrong
Briggs equipment:
$ 501,485 is wrong
.
Answer & Explanation
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