Answer the following questions using the information below:
Footscray Hospital is considering purchasing a new x-ray machine.The existing machine is operable for five more years and will have a zero disposal price.The machine may be sold for $45 000 now.The new machine will cost $325 000 and an additional cash investment in working capital of $10 000 will be required.The new machine will reduce the average time required to take x-rays and will allow additional business to be done at the hospital.The investment is expected to net $30 000 in additional cash inflows during the year of acquisition and $120 000 each additional year of use.The new machine has a five-year life,and zero disposal value.These cash flows will occur throughout the year but are recognised at the end of each year.Ignore income taxes.The working capital investment will not be recovered at the end of the asset's life.
-Which of the following results of the net present value method in capital budgeting is the LEAST acceptable?

Question

Quizplus · Accepted Answer

The net present value (NPV) of option B is negative, indicating that the investment will result in a loss for the hospital. The other options have positive NPVs, indicating that the investment will generate a return that exceeds the cost of capital. Therefore, option B is the least acceptable result.

The best choice for the hospital would be to purchase the new x-ray machine, as it has a positive NPV and will generate additional cash inflows over the next five years. The hospital should choose the option with the highest NPV, which would maximize the return on investment. In this case, the best choice would be option A, as it has the highest NPV of $35,000.

Answer the Following Questions Using the Information Below