Tampa Hospital has been considering the purchase of a new x-ray machine. The existing machine is operable for five more years and will have a zero disposal price. The new machine will cost $580,000. The new machine will 

reduce the average amount of time required to take the x-rays and will allow an additional amount of business to be done at the hospital. The investment is expected to net $60,000 in additional cash inflows during the year of 

acquisition (year 1) and $230,000 each additional year of use (years 2, 3, 4, and 5). The new machine has a five-year life, and zero disposal value. These cash flows will generally occur throughout the year and are recognized at the 

end of each year. Income taxes are not considered in this problem. The working capital investment will not be recovered at the end of the asset's life. What is the NET present value of the investment, assuming the required rate of return is 12%? Would the hospital want to purchase the new machine?

 

Answer rating: 100% (QA)

To calculate the net present value NPV of the investment we need to discount the cash inflows assoc... View the full answer