Consider the following scenario:
A Saudi Arabian hospital bought a new medical laser machine for 2,812,500 Saudi riyals (SAR). The machine will
generate a cashflow of 562,500 SAR for six years, which is the expected useful life starting Year 1. The cost of
capital is 8 percent. The expected salvage value for each year is shown below:
Year Salvage Value (in Saudi riyals - SAR)
0 2,812,500
1 2,250,000
2 1,687,500
3 937,500
4 375,000
5 93,750
6 0
Using NPV, determine at what year the hospital should dispose of the equipment. Please make certain that you
show your calculations. Submit your findings in a proposal to the hospital.
Your proposal should include the following components:
● A one-page discussion identifying when the equipment should be disposed of based on NPV. And mention its importance and impact on a business.
● The calculations of NPV in an Excel spreadsheet which supports your position. You must show all your
calculations for credit.