Question: Goltra Clinic is considering investing in new heart-monitoring equipment. It has two options:
- Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years.
- Option B would require no rebuilding expenditure, but its maintenance costs would be higher.
Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company's cost of capital is 8%.