Project net cash flows over its three-year estimated life

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Reference no: EM132066957

Lehman Imaging Center, a not-for-profit business, is evaluating the purchase of new diagnostic equipment. The equipment, which costs $1,500,000, has an expected life of 3 years and an estimated salvage value of $450,000 at that time. The equipment is expected to be used 30 times a week for 50 weeks a year for each year of the project’s life. On average, each procedure is expected to generate $750 in cash collections for each procedure performed. Labor costs are expected to be $45,000 during the first year of operation, while utilities will cost another $5,000. The cost for expendable supplies is expected to average $25 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.

Estimate the project’s net cash flows over its three-year estimated life.

What is the project’s NPV

What is the IRR?

Is the project profitable? Why or why not?

Reference no: EM132066957

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