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Cash payback period-net present value

Problem:

Newman Medical Center is considering purchasing an ultrasound machine for $1,150,000. The machine has a 10-year life and an estimated salvage value of $30,000. Installation costs and freight charges will be $19,200 and $800, respectively. The center uses straight-line depreciation. Newman's cost of capital is 9%.

The medical center estimates that the machine will be used five times a week with the average charge to the patient for ultrasound of $775. There are $5 in medical supplies and $20 of technician costs for each procedure performed using the machine. The present value of an annuity factor for 10 years at 9% is 6.41766, and the present value of a single sum factor for 10 years at 9% is .42241

Instructions

1. For the new ultrasound machine, compute the:

(a) cash payback period.

(b) net present value.

(c) annual rate of return.

Now Priced at $20 (50% Discount)

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## Q : Incremental cash flows regarding problem

You have decided that a 15% discount rate is appropriate for this type of investment. The incremental cash flows associated with each of the proposals are: