2. Consider the base case situation for the first system to be acquired.

a. what are the NPVs and IRRs of the two alternative technologies? What factor drives the finfncial superiority of the more profitable technology?

b. What is the incremental NPV of solid state versus water perfusion technology? What does the incremental NPV tell us?

3. Solid state technology allows for expanded volume. Assess the sensitivity of the decision to the number of additional tests performed. To do this, assume that the number of additional tests could be as low as 50 or as high as 150. Also, what would be the result if there were no additional tests?

4. Consider the backfill assumption. Assess the sensitivity of the decision to the number of additional bed days. What if the number of additional bed days were as low as 80 or as high as 175? What if no additional bed days resulted from the backfill opportunity? What is the breakeven number of bed days? (that is, the number at which the hospital is indifferent between the two technologies)?

5. Do the two systems have the same financial risk? (Put another way, are the cash flows being discounted equally risky?) If not, why not? Modify your analysis to incorporate differential risk if you believe that exists?

6. What is your final recommendation regarding replacement of the first system?

7. Consider the second proposed (water perfusion) system acquisition.

a. Should this system be purchased?

b. Explain why and how this analysis differs from the one conducted in Question2.

8. In your opinion, what are the three key learning points from this case?