1. Dima Hospital is considering the purchase of a new machine that will cost $600,000 and has a four-year useful life. The new machine will reduce the average amount of time required to take the x-rays and will increase the volume of x-rays performed each year. The new machine is expected increase cash revenues by $324,600 each year of the equipment’s useful life. Additional variable costs to support the increased x-ray volumes equal $130,000 per year. The firm uses straight-line depreciation with no terminal disposal value for all depreciable assets. The new machine has an expected salvage value of zero at the end of the project. Dima's combined income tax rate is 20%. Management requires a minimum after-tax rate of return of 10% on all investments.

a. Calculate the Net Present Value (NPV) for this project.

Answer rating: 100% (QA)

Incremental revenue 324600 Less Incremental variable costs 130000 Less Annual depreciation 600000 ... View the full answer