Southwest Specialty Clinic is considering adding an onsite MRI scanner. Current estimates are that the MRI scanner will cost $1,900,000 to purchase, install and prepare for use.
Cash flows expected from operation of the scanner during its estimated five year project life are:
Year Cash Flow
1 300,000
2 350,000
3 400,000
4 450,000
5 500,000
Southwest expects to be able to sell the MRI scanner for $200,000 at the end of year 5. Southwest's cost of capital (opportunity cost) is 6% compounded monthly. Should Southwest invest in the MRI scanner ?