Reference no: EM132419038
Problem: The not-for-profit clinic Wise Care, is currently sending out all lab tests to an independent center. To generate additional revenue, the clinic is considering the purchase of new lab equipment, which will allow the services to be performed in-house. The equipment, which costs $250,000, has an expected life of five years and an estimated salvage value of $100,000 at that time. The equipment is expected to be used 12 times a day for 275 days a year for each year of the project's life. On average, each test is expected to generate $45 in cash collections (revenues) during each year of use. Expenses for each year (do not assume an inflation adjustment) include: labor and maintenance costs ($75,000), utilities ($6,000), overhead ($4,000), and supplies of $3 per procedure. Corporate cost of capital is 10%
Required:
Question 1: What are the cash flows for this project?
Question 2: What is the project's IRR? What does it tell you?
Question 3: Assuming a project cost of capital of 10%, what is the project's NPV? What does it tell you?
Question 4: What is your final recommendation?
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