HCA is evaluating the bulk purchase of new Hill-Rom hospital beds for its Central & West Texas
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Question:
The hospital's aggregate tax rate is 21.15%, and its corporate cost of capital is 8.4%. The equipment falls into the MACRS five-year class for tax depreciation and hence is subject to the following depreciation allowances: Year Allowance 1 20% 2 32% 3 19% 4 12% 5 11% 6 6%.
a. Estimate the project's net cash flows over its five-year estimated life.
b. What are the project's NPV and IRR? (Assume that the project has average risk.)
c. Based on the results of the analysis, should this project be approved?
a. Complete the table below, solving for the project's net cash flows over its five-year estimated life. 0 1 2 3 4 5
Equipment cost -$36,000,000
Net revenues Less: Maintenance costs Utilities costs Supplies Depreciation Operating income Taxes Net operating income Depreciation Plus: After-tax equipment salvage value* Net cash flow -$36,000,000
b. What are the project's NPV and IRR? (Assume that the project has average risk.)
c. Based on the results of the analysis, should this project be approved?
Related Book For
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
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