Wilburton 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:
Both projects require an initial investment of $ 700,000. In both cases, assume that the equipment has a life of five years with no salvage value.
1. Assuming a discount rate of 12 percent, compute the net present value of each piece of equipment.
2. A third option has surfaced for equipment purchased from an out-of-state supplier. The cost is also $ 700,000, but this equipment will produce even cash flows over its five-year life. What must the annual cash flow be for this equipment to be selected over the other two? Assume a 12 percent discount rate.

  • CreatedSeptember 22, 2015
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