Net Present Value and Competing Projects

Follow the format shown in Exhibit $12$B$.1$ and Exhibit $12$B$.2$ as you complete the requirements below.

Spiro Hospital is investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the

equipment. After$-$tax cash inflows for the two competing projects are as follows:

Both projects require an initial investment of $$560,000.$ In both cases, assume that the equipment has a life of $5$ years with no salvage value.

Required:

Round present value calculations and your final answers to the nearest dollar.

Assuming a discount rate of $12\%,$ compute the net present value of each piece of equipment.

A third option has surfaced for equipment purchased from an out$-$of$-$state supplier. The cost is also $$560,000,$ but this equipment will produce even cash flows over its $5-$

year life. What must the annual cash flow be for this equipment to be selected over the other two? Assume a $12\%$ discount rate.