H K 1 3 4 A B C D E F G J 1. Answer the following compounding/discounting questions assuming year-end cash flows. The Chicago Hope Hospital purchased a MRI machine for 12 million dollars, using a 6-year loan at 8% interest (the same problem as above). 2 a. If the above MRI machine which costs $12 million, comes with a service charge for an additional amount of $20,000 each year for 6 years. What is the present value of cash outflow for the MRI machine (use 7% as the discount rate)? Alternate Method: Payment PV = FV/(1+1)^N PV $ 12,000,000 Solve for PV: 7 N $12,468,241.20 $2,615,784.63 $2,444,658.54 8 0.07 $2,615,784.63 $2,284,727.60 9 FV $2,615,784.63 $2,135,259.44 PMT $2,615,784.63 $2,615,784.63 $1,995,569.57 $2,615,784.63 $1,865,018.29 12 $2,615,784.63 $1,743,007.75 13 $12,468,241.20 5 N 6 0 6 1 B 2 0 3 3 10 4 11 5 6 b. If the salvage value of the machine is $100,000 six years from now. What is the present value of the salvage value of the MRI machine 14 (use 7% as the discount rate)? 15 FV $ (100,000) Solve for PV: PV = FV/(1+1)^N $66,634.22 $ 66,634.22 18 0.07 16 17 N 6 1 19 PMT 0 20