A hospital is considering to purchase a diagnostic machine costing $80,000.$ The projected

life of the machine is $8$ years and has an expected salvage value of $6,000$ at the end of $8$

years. The annual operating cost of the machine is $7,500.$ It is expected to generate

revenues of $40,000$ per year for eight years. Presently, the hospital is outsourcing the

diagnostic work and is earning commission income of $12,000$ per annum; net of taxes.

Required:

Whether it would be profitable for the hospital to purchase the machine? Give your

recommendation under:

i$.$ Net Present Value method

ii$.$ Profitability Index method.

PV factors at $10\%$ are given below: