A healthcare firm’s investment of $1,000 in a piece of equipment will reduce labor costs by $400 per year for the next 5 years. Thirty percent of all patients seen by the firm have a third-party payer arrangement that pays for capital costs on a retrospective basis. Thirty percent of all patients also reimburse for actual operating costs. What is the annual cash flow of the investment? Assume a 5-year life and straight-line depreciation. A healthcare firm’s investment of $1,000 in a piece of equipment will reduce labor costs by $400 per year for the next 5 years. Thirty percent of all patients seen by the firm have a third-party payer arrangement that pays for capital costs on a retrospective basis. Thirty percent of all patients also reimburse for actual operating costs. What is the annual cash flow of the investment? Assume a 5-year life and straight-line depreciation.

What issues need to be taken into consideration to determine which is the lowest cost alternative?