Carolina Clinic is considering investing in new heart monitoring equipment. It has two options: Option A would
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Carolina Clinic is considering investing in new heart monitoring equipment. It has two options: Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 7%
Option A | Option B | |
Initial Cost | 177000 | 268000 |
Annual Cash Inlfows | 72000 | 81700 |
Annual Cash outlows | 28500 | 25600 |
Cost to rebuild (end of year 4) | 51000 | 0 |
Salvage value | 0 | 7400 |
Estimated useful life | 7 | 7 |
Related Book For
Managerial Accounting Tools for business decision making
ISBN: 978-0470477144
5th edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
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