Answer the Following Questions Using the Information Below

question 37

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.
-If the net cash inflows were $20 000 in the first year and $110 000 in the following years,should the X-ray machine be purchased? What is the net present value of the investment,assuming the required rate of return is 14%? Would the hospital want to purchase the new machine?

• A)$25 350;yes
• B)$8590;yes
• C)$8590;no
• D)$(8590);yes

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