Net Present Value and Competing Projects

For discount factors use Exhibit $12$B$\mathrm{.}1$ and Exhibit $12$B$\mathrm{.}2.$

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:

Year Puro Equipment Briggs Equipment

$1$ $$320,000$ $$120,000$

$2280,000120,000$

$3240,000320,000$

$4160,000400,000$

$5120,000440,000$

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.

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

$1.$ Assuming a discount rate of $12\%,$ compute the net present value of each piece of equipment.

Line Item Description Amount

Puro equipment: $

$289,530$

Briggs equipment: $fill in the blank $2$

Since the NPV of the Briggs equipment is fill in the blank $1$ of $3$

greater

than that of the Puro equipment, Briggs should fill in the blank $2$ of $3$

be

chosen. The data analytics types are fill in the blank $3$ of $3$

predictive and prescriptive

$.$

$2.$ 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.

fill in the blank $1$ of $1$$

per year