You are considering buying a new laboratory blood analysis system that will require an initial outlay of
Question:
You are considering buying a new laboratory blood analysis system that will require an initial outlay of $80,000. The system has an expected useful life of 5 years and will generate free cash flows to the hospital as a whole of $15,000atthe end of each year over its five year life. In addition, the salvage value of the system is expected to be $10,000 based on current market conditions. Given a required rate of return of 12 percent, determine the following:
Year Cash Flow Cummulative
0 $ (80,000) $ (80,000)
1 $ 15,000 $ (65,000)
2 $ 15,000 $ (50,000)
3 $ 15,000 $ (35,000)
4 $ 15,000 $ (20,000)
5 $ 25,000 $ 5,000
Determine the following:
a. Payback period
b. NPV
c. IRR
d. Should the project be accepted?
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen