Purchase Solution

ARR, PP,NPV and IRR

Not what you're looking for?

Ask Custom Question

A hospital is considering the purchase of new equipment. - Machine A and Machine B.

Machine A
has a cost of $100000 and has an expected economic life of five years, after which it has a scrap value: $ 25000. The after taz profits or losses for the next five years are ($10,200), $10000, $30000, $20000 and $15000.

Machine B
Has an initial cash outlay of $105000 with an economic life of five years and no scrap value. The annual after tax profits are expected to be $14000 for each of the next five years.

The hospital requires a return on average assets employed of 18 % and has a cost of capital of 12%. Its also prefers projects that pay for themselves within three years.

Depreciation is always on a straight line basis.

1. Calculate: The ARR
The PP
The NPV
The IRR

2. Which machine is better investment and why?

3. Explain your preferred method of evaluating the investment merits of these machines.

4. Why cash flows rather than profit flow that used in the IRR, NPV and PP method of investment appraisal?

5. Why opportunity cost is important in capital investment decision?

Purchase this Solution

Solution Summary

The solution determines the ARR, PP, NPV and IRR.

Purchase this Solution


Free BrainMass Quizzes
Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.