Calexico Hospital plans to invest in a new MRI.
Calexico Hospital plans to invest in a new MRI. The cost of the MRI is $3,000,000. The machine has an economic life of five years, and it will be depreciated over a five?year life to a $500,000 salvage value. Additional revenues attributed to the new machine will amount to $3,000,000 per year for five years. Additional operating costs, excluding depreciation expense, will amount to $2,000,000 per year for five years. Over the life of the machine, net working capital will increase by $40,000 per year for five years.
Assuming that the hospital is a non?taxpaying entity, what is the project’s NPV at a discount rate of 8 percent, and what is the project’s IRR? Is the decision to accept or reject the same under either capital budgeting method, or does it differ?”
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