Medical Center is starting a new lab test center on its third floor. The expected patient...

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Medical Center is starting a new lab test center on its third floor. The expected patient volume demands will generate $500,000 per year in revenues for the next five years. The new center will incur operating expenses, excluding depreciation, of $300,000 per year for the next five years. The initial cost of the new equipment is $700,000. Straight-line depreciation is used to estimate depreciation expense, and the equipment will be depreciated over a five-year life to their salvage value. The expected salvage value of the equipment at year five is $80,000. Compute the NPV (at 10 percent cost of capital) and IRR to determine the financial feasibility of this project if this were a tax-paying entity with a tax rate of 30 percent. Use the following tables. Givens: Initial investment Net revenue Operating expenses Depreciation expense Salvage value at the end of project year Cost of capital Tax rate Analysis Initial investment Net revenue Operating expense Depreciation expense Earnings before taxes Tax expense Earnings after taxes Add Depreciation expense Net operating cash flows Salvage value Project cash flows Cost of capital Present value interest factors Annual PV of cash flows Sum of PV of cash flows Net present value (NPV) Internal rate of return (IRR)-Use excel formula Years Years 0 0 1 1 2 2 3 3 4 4 5 5 Medical Center is starting a new lab test center on its third floor. The expected patient volume demands will generate $500,000 per year in revenues for the next five years. The new center will incur operating expenses, excluding depreciation, of $300,000 per year for the next five years. The initial cost of the new equipment is $700,000. Straight-line depreciation is used to estimate depreciation expense, and the equipment will be depreciated over a five-year life to their salvage value. The expected salvage value of the equipment at year five is $80,000. Compute the NPV (at 10 percent cost of capital) and IRR to determine the financial feasibility of this project if this were a tax-paying entity with a tax rate of 30 percent. Use the following tables. Givens: Initial investment Net revenue Operating expenses Depreciation expense Salvage value at the end of project year Cost of capital Tax rate Analysis Initial investment Net revenue Operating expense Depreciation expense Earnings before taxes Tax expense Earnings after taxes Add Depreciation expense Net operating cash flows Salvage value Project cash flows Cost of capital Present value interest factors Annual PV of cash flows Sum of PV of cash flows Net present value (NPV) Internal rate of return (IRR)-Use excel formula Years Years 0 0 1 1 2 2 3 3 4 4 5 5

Answer rating: 100% (QA)

SOLUTION To calculate the net present value NPV and internal rate of return IRR of the project we ne... View the full answer