4 finance questions I need the answers for by 8pm EST please. Attached are the questions.
10.2 California Imaging Center, a not-for-profit business, is evaluating the purchase of new diagnostic equipment. The equipment, which costs $600,000, has an expected life of five years and an estimated salvage value of $200,000 at that time. The equipment is expected to be used 15 times a day for 250 days a year for each year of the project’s life. On average, each procedure is expected to generate $80 in cash collections
during the first year of use. Thus, net revenues for Year 1 are estimated at 15 x 250 x $80 = $300,000.
Labor and maintenance costs are expected to be $100,000 during the first year of operation, while utilities will cost another $10,000 and cash overhead will increase by $5,000 in Year 1. The cost for expendable supplies is expected to average $5 per procedure during the first year. All costs and revenues are expected to increase
at a 5 percent inflation rate after the first year. The center’s corporate cost of capital is 10 percent.
a. Estimate the project’s net cash flows over its five-year estimated life. (Hint: Use
the following format as a guide.)
Year012345Equipment CostNet RevenuesLess: Labor/Maintenance CostsUtilities CostsSuppliesIncremental OverheadOperating IncomeEquipment Salvage Value Net Cash FlowCHAPTER PROBLEMS
b. What are the project’s NPV and IRR? (Assume for now that the project has average
c. Assume the project is assessed to have high risk and California Imaging Center adds
or subtracts 3 percentage points to adjust for project risk. Now, what is the project’s
NPV? Does the risk assessment change how the project’s IRR is interpreted?
Also, I had this question last week,
Define financial risk. Why is risk analysis so important to capital investment decisions? I answered the following which was correct. I had a follow up question which I will post below this answer.
Financial risk is an umbrella term for…