Question

Your hospital is considering buying personal computers to install in each patient’s room. The cost of...

Your hospital is considering buying personal computers to install in each patient’s room. The cost of the investment to the hospital will be $1,400,000. It is expected that these PCs will reduce nursing costs by $200,000 per year for the next seven years. If your discount rate is 10 percent,

a) What is the Net Present Value of the investment?

b) What is the profitability index of this investment?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a)

Net present value = Present value of cash inflows - present value of cash outflows

Net present value = Annuity * [1 - 1 / (1 + r)n] / r - Initial investment

Net present value = 200,000 * [1 - 1 / (1 + 0.1)7] / 0.1 - 1,400,000

Net present value = 200,000 * 4.86842 - 1,400,000

Net present value = 973,683.7635 - 1,400,000

Net present value = -$426,316.24

b)

Present value = 200,000 * [1 - 1 / (1 + 0.1)7] / 0.1 - 1,400,000

present value = 200,000 * 4.86842

present value = 973,683.7635

Profitability index = Present value / initial invesntment

Profitability index = 973,683.7635 / 1,400,000

Profitability index = 0.695

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Your firm is considering an investment that will cost $950,000 today. The investment will produce cash...
Your firm is considering an investment that will cost $950,000 today. The investment will produce cash flows of $400,000 in year 1, $250,000 in years 2, 3 and 4, $200,000 in year 5 and $250,000 in year 6. The discount rate that your firm uses for projects of this type is 11%. What is the investment's profitability index?
question 1: A company is considering buying a machine that would give a net cost savings...
question 1: A company is considering buying a machine that would give a net cost savings of $70,000 per year for 10 years. The cost of the machine is $325,000. The company weighted average cost of capital is 12%. What is the net present value of buying machine? question 2: for the above, what is the profitability index for the machine? question 3: for the above, what is the difference between the IRR and the ARR? assume there is no...
A new furnace for your small factory will cost $47,000 and a year to install, will...
A new furnace for your small factory will cost $47,000 and a year to install, will require ongoing maintenance expenditures of $1,500 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 4,400 gallons per year. Heating oil this year will cost $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable...
A new furnace for your small factory will cost $39,000 and a year to install, will...
A new furnace for your small factory will cost $39,000 and a year to install, will require ongoing maintenance expenditures of $1,100 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 3,600 gallons per year. Heating oil this year will cost $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable...
A new furnace for your small factory will cost $30,000 and a year to install, will...
A new furnace for your small factory will cost $30,000 and a year to install, will require ongoing maintenance expenditures of $1,800 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 2,700 gallons per year. Heating oil this year will cost $3 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable...
A new furnace for your small factory will cost $38,000 and a year to install, will...
A new furnace for your small factory will cost $38,000 and a year to install, will require ongoing maintenance expenditures of $1,200 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 3,500 gallons per year. Heating oil this year will cost $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable...
A new furnace for your small factory will cost $36,000 and a year to install, will...
A new furnace for your small factory will cost $36,000 and a year to install, will require ongoing maintenance expenditures of $1,000 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 3,300 gallons per year. Heating oil this year will cost $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable...
A new furnace for your small factory will cost $28,000 and a year to install, will...
A new furnace for your small factory will cost $28,000 and a year to install, will require ongoing maintenance expenditures of $1,600 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 2,500 gallons per year. Heating oil this year will cost $3 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable...
a. Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make...
a. Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.14 million and create incremental cash flows of $688,378.00 each year for the next five years. The cost of capital is 10.79%. What is the net present value of the J-Mix 2000? round to 2 decimal places b. Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product....
Bonita Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $448,000,...
Bonita Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $448,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $73,100. Project B will cost $299,000, has an expected useful life of 11 years, a salvage value of zero, and is expected to increase net annual cash flows by $50,300. A discount rate of 9% is appropriate for both projects. Click...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT