The MRI Trailer

The Board of Trustees has decided that we should attempt to expand our service offering. They want you to evaluate the information below and determine if this is a project we should move forward with. If your submission is not in Excel, you will earn a zero for this assignment.

The MRI Trailer costs $600,000 and has an expected life of 5 years with an estimated salvage value of $200,000 at that time. After some extensive research, the numbers we have come up with look like this:

15 tests per day for 250 days per year for each year of the projects life
Each procedure is expected to generate $80 in cash collections during the first year of use (Net revenue for year 1 is 15*250*80=$300,000)
Labor and Maintenance costs are expected to be $100,000 during the first year
Utilities will cost $10,000 in year one and there is an incremental overhead increase of $5,000 beginning in year one
Cost for expendable supplies is expected to be $5 per procedure
Costs and revenues are expected to increase at a 5% inflation rate
Our corporate cost of capital is 10%

In the Excel spreadsheet template:

estimate the project’s net cash flow over the 5 year estimated life. I want you to use the properties (formulas) in Excel here.
determine the project’s NPV and IRR (Use the excel formulas to determine this as well)
Is this a project we should move forward with? (Consider NPV and strategic value here)—This can be written in text into your excel sheet.

 

 

MRI Trailer Purchase Year
0 1 2 3 4 5
Equipment Cost
Net Revenues
Less: Labor/Maintenance Costs
Utilities Costs
Supplies
Incremental Overhead
Operating Income
Equipment Salvage Value
Net Cash Flow
Net Present Value (NPV)
Internal Rate of Return (IRR)