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Question(s) / Instruction(s):

The Safety First Hospital, a non-profit entity, is starting a new heart center.  It is expected that the new heart center will generate $5,000,000 per year in net patient revenues for the next five years.  Operating expenses, excluding depreciation, are estimated $3,000,000 per year.  The initial cost of the heart center building and equipment is estimated at $8,000,000.  The building and equipment will be depreciated over a 5 year life to a cash salvage value of $1,000,000.

What is the Net Present Value (NPV) of the new heart center project if the cost of capital is 10%?

a)            Approximately $100,000

b)            Approximately $200,000

c)            Approximately $300,000

d)            Approximately $400,000

e)            Approximately $500,000

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