Two hospitals are considering merging their laundry departments and constructing a new facility to take care of their future laundry requirements. Relevant cost data are presented in TABLE 20-8.

The new laundry facility will cost approximately $40,000 to construct and will be located between the two hospitals in a leased building. Average life of the equipment is assumed to be 8 years, which generates a $5,000 yearly depreciation charge. Lease payment is fixed at $3,000 per year for the next 8 years. Financing for the project will be generated from available funds in each institution: $12,000 from Hospital A and $28,000 from Hospital B.

Expenses will be shared using the same ratios (30% and 70%, respectively). Both hospitals use a discount factor of 10% on their cost-reduction investment projects. Given this information, do you believe the merger is beneficial to both hospitals? What other information would you like to have to help you evaluate this investment project?