Answer the Following Questions Using the Information Below

question 65

Multiple Choice

Answer the following questions using the information below:
Jonesville Hospital has been considering the purchase of a new x-ray machine. The existing machine is operable for five more years and will have a zero disposal price. If the machine is disposed now, it may be sold for $90,000. The new machine will cost $650,000 and an additional cash investment in working capital of $20,000 will be required. The new machine will reduce the average amount of time required to take the x-rays and will allow an additional amount of business to be done at the hospital. The investment is expected to net $60,000 in additional cash inflows during the year of acquisition and $230,000 each additional year of use. The new machine has a five-year life, and zero disposal value. These cash flows will generally occur throughout the year and are recognized at the end of each year. Income taxes are not considered in this problem. The working capital investment will not be recovered at the end of the asset's life.
-What is the net present value of the investment, assuming the required rate of return is 12%? Would the hospital want to purchase the new machine?

• A)$(97,340); no
• B)$51,430 no
• C)$ 97,340; yes
• D)$166,830; yes

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Definitions:

Original Cost

The initial purchase price or cost of acquiring an asset, including any expenses necessary to get the asset ready for use.

Batting Cages

Enclosed areas for baseball or softball players to practice batting.

Gain Or Loss

Gain or loss refers to the financial outcome resulting from the sale of an asset or investment, calculated as the difference between the sale price and the original purchase price.

Accumulated Depletion

The total reduction in value of a natural resource as it is extracted or used over time.