Question
A new instrument capable of performing 40,000 tests per year has a purchase price of $15,000,000. Installation will cost 10% of the purchase price. The
A new instrument capable of performing 40,000 tests per year has a purchase price of $15,000,000. Installation will cost 10% of the purchase price. The manufacturer covers maintenance costs for the first year in the purchase price. Thereafter, it will cost $200,000 per year for a maintenance contract.
Assume the following:
The instrument will generate added test volume at a rate of 15,000 tests in the first year, and this amount will increase annually by 10,000 tests/year.
You can charge $250 per test.
Collection rate is 80%.
You will be able to reduce the workforce by 10 FTEs,each of which is paid a salary of $50,000/year.
The fringe benefits rate for workers is 20% of the salary.
The hurdle rate for this opportunity is 7.0%.
Use the data presented to determine:
(1) benefit/cost ratio
(2) the net present value
(3) the average payback period for the proposed equipment acquisition.
Then, decide whether the opportunity should be pursued and explain your reason(s).
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