Table 6.6 Burdell Labs Is a Diagnostic Laboratory That Does Various Tests

question 119

Multiple Choice

Table 6.6
Burdell Labs is a diagnostic laboratory that does various tests (blood tests,urine tests,etc. ) for doctors' offices in the Indianapolis area.Test specimens are picked up at the doctors' offices and are transported to the testing facility,with uniform arrivals throughout the day.All tests go through two testing centers in the testing facility,Test Center A and Test Center B.A has a current capacity of 1,000 units per week,and B is capable of 1,500 units per week.The facility operates 50 weeks per year.This year (year 0) ,test volumes are expected to reach 1,000 units per week.Growth per week is projected at an additional 200 units through year 5 (i.e. ,1,200 per week in year #1,1,400 per week in year #2,etc. ) .Pre-tax profits are expected to be $5 per test throughout the 5-year planning period.Two alternatives are being considered:
-Use the information in Table 6.6.What is the pre-tax cash flow (net present value) for alternative #1 compared to the base case of doing nothing for the next five years?

• A)negative pre-tax cash flow
• B)more than $0 but less than $80,000
• C)more than $80,000 but less than $160,000
• D)more than $160,000

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