Northern Alliance Medical facility is considering producing a home blood pressure instrument equipment costing $32 000.00 plus $40 000.00 increase in working capital will be required for the project. The company annual for each of the 5 years are $300 000.00 and operating expenses are $180 000.00. the equipment has a life span of 5 years and will be sold at the end of 5 years for $14 000.00 Northern Alliance investors require a rate of return of 12%. a) Calculate the net annual cash flow for each of the 5 years (10) b) Using NPV procedure, explain to the investors whether they should proceed with the procurement of the equipment or not (10) c) Using the internal rate of return (IRR) procedure advise the investors what they should do (30)

/in /by

Northern Alliance Medical facility is considering producing a home
blood pressure instrument equipment costing $32 000.00 plus $40 000.00
increase in working capital will be required for the project.

The company annual for each of the 5 years are $300 000.00 and
operating expenses are $180 000.00. the equipment has a life span of 5
years and will be sold at the end of 5 years for $14 000.00 Northern
Alliance investors require a rate of return of 12%.

a)    Calculate the net annual cash flow for each of the 5 years
(10)

b)    Using NPV procedure, explain to the investors whether they
should proceed with the procurement of the equipment or not (10)

c)     Using the internal rate of return (IRR) procedure advise
the investors what they should do (30)

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