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