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?
PLEASE take into consideration the MONTHLY oppurtunity cost of 6% and resale value at the end of year 5 for $200,000. Please show your work.