Question

A clinic is considering the possibility of two new purchases: new MRI equipment and new biopsy equipment. Each project requires an investment of $434,200. The expected life for each is five years with no expected salvage value. The net cash inflows associated with the two independent projects are as follows:

Year	MRI Equipment	Biopsy Equipment
1	$183,000	$60,000
2	97,000	48,000
3	166,000	99,000
4	98,000	182,000
5	49,000	242,000

The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems.

Required:

Compute the net present value of each project, assuming a required rate of 12 percent. If the NPV is negative, enter your answer as a negative value.

	NPV
MRI equipment	$
Biopsy equipment	$

Answer 1

Answer-Net present value-MRI Equipment =$14770.

Explanation-

Calculation of Investment's Net Present Value
	MRI Equipment
	Net Cash Flows $ (a)	Present Value of 1 at 12% (b)	Present Value of cash flows (c=a*b) $
Year 1	183000	0.8929	163401
Year 2	97000	0.7972	77328
Year 3	166000	0.7118	118159
Year 4	98000	0.6355	62279
Year 5	49000	0.5674	27803
Totals
Total present value of cash inflow (a)			448970
Total cash outflow (b)	-434200	1	-434200
Net Present Value $ (c=a-b)			14770

Net present value-Blopsy Equipment =($18920).

Explanation-

Calculation of Investment's Net Present Value
	Blopsy Equipment
	Net Cash Flows $ (a)	Present Value of 1 at 12% (b)	Present Value of cash flows (c=a*b) $
Year 1	60000	0.8929	53574
Year 2	48000	0.7972	38266
Year 3	99000	0.7118	70468
Year 4	182000	0.6355	115661
Year 5	242000	0.5674	137311
Totals
Total present value of cash inflow (a)			415280
Total cash outflow (b)	-434200	1	-434200
Net Present Value $ (c=a-b)			-18920