Answer the Following Questions Using the Information Below

question 47

Multiple Choice

Answer the following questions using the information below:
Footscray Hospital is considering purchasing a new x-ray machine.The existing machine is operable for five more years and will have a zero disposal price.The machine may be sold for $45 000 now.The new machine will cost $325 000 and an additional cash investment in working capital of $10 000 will be required.The new machine will reduce the average time required to take x-rays and will allow additional business to be done at the hospital.The investment is expected to net $30 000 in additional cash inflows during the year of acquisition and $120 000 each additional year of use.The new machine has a five-year life,and zero disposal value.These cash flows will occur throughout the year but are recognised at the end of each year.Ignore income taxes.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 20%? Would the hospital want to purchase the new machine?

• A)$(6170);yes
• B)$(6170);no
• C)$6170;yes
• D)$25 350;yes

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Definitions:

Adjusting Entries

Accounting records created at the conclusion of an accounting cycle to distribute revenues and expenses to the period they truly belong.

Cash Flow Statement

A cash flow statement is a financial report that provides aggregate data regarding all cash inflows and outflows a company receives.

Deferred Expense

Deferred Expense is an expenditure that is made in advance and included in assets to be used or consumed in a future period.

Prepaid Insurance

An asset account that represents insurance premiums paid in advance, which are expensed over the period the insurance coverage relates to.