Question

Scotia Family Health Team is investigating purchasing an ultrasound machine for use in its patient clinic. The machine would cost $97,900, including invoice cost, freight, and the training of employees to operate it. Scotia has estimated that the new machine would increase the company’s cash flows, net of expenses, by $17,000 per year. The machine would have a nine-year useful life with no expected salvage value.
Required:
Ignore income taxes.
1. Compute the machine’s IRR rounded to one decimal place.
2. Compute the machine’s net present value using a discount rate of 10%. Why do you have a zero net present value?
3. Suppose that the new machine would increase the company’s annual cash flows, net of expenses, by only $15,000 per year. Under these conditions, compute the IRR rounded to one decimal place.


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  • CreatedJuly 08, 2015
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