A local dentist is considering the purchase of a new laser that uses state of the art technology to painlessly perform root canals. The initial investment is $200,000 and the dentist hopes that the laser will not become absolete for six years. He expects to increase the volume of patients. Cash flows are expected to be $60,000 for the first two years, $75,000 for the next three years, and $90,000 for the final two years of the life of the asset. The dentist requires a 7.5% return on dental equipment.
A) Identify the reasons you think the operating cash flows might increase over the life of the asset.
B) Determine the net present value of the laser?
C)State the accept/reject decision and justify your answer beyond the sign of the NPV.
D) Determine the net present value of the laser if the intial investment increases to $250,000?