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Grace Mercy Hospital financed the purchase of a Surgical System by making payments of $25.000 at the end of each of five year
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Answer #1

Answer)

Calculation of Cost of Surgical System

Cost of Surgical System = Annual Cash Payment X Present Value or ordinary annuity at 8% for 5 years

                                            = $ 25,000 X 3.99271

                                            = $ 99818 (approximately)

Therefore the cost of Surgical System is $ 99,818 and the correct option is (B).

Note: In the given question, payment of $ 25,000 will be made at the end of each year for next 5 years. Since the payment will be made in future, its current cost can be calculated using Present value of annuity factor at appropriate interest rate (i.e. 8%) for the period of installments (i.e. 5 years).

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