Interpretation of present value analysis—calculate annual cash flow Lake Regional Hospital is considering the acquisition of a new diagnostic scanning ma¬ chine. The investment required to get the machine operational will be $2,082,560. The machine will be capable of performing 6,000 scanning procedures per year, but based on the experience of other hospitals, management estimates that the machine will be used at 80% of its capacity. The hospital’s cost of capital is 8%; the machine has an estimated useful life of seven years and no salvage vglue.

Required:

a. Assuming a constant cash flow every year, calculate the annual net cash flow required from the scanner if the IRR of the investment is to equal 8%. (Hint: The annual net cashflow requirement is an annuity.)

b. If the direct cash costs of operating the scanner equal 50% of the annual net cash flow requirement calculated in part

a, what price should the hospital charge per scanning procedure in order to achieve a 8% ROI?