Details summary for A Clinic below A clinic is a chain of cardiology specialty clinics. Chief of cardiology is reviewing a proposal for new 360+-degree heart scanners. The chain' s leading surgeon has requested be purchased for all 10 clinics in the chain. The doctors want the scanners because they will permit the clinic doctors to make rapid, accurate problem diagnoses and treatment recommendations. 

A clinic is owned by 8 physicians who work at the chain. The physicians have invested almost all of their personal assets in the firm. An investment totaling $10 million. Similar healthcare related specialty chains typically provide 20% return on investment for shareholders. A clinic was previously able to borrow an additional $10 million from the bank at 10% interest rate by providing the personal guarantees of the 8 physicians.

Chief of cardiology thinks that the bank would agree to finance the new heart scanners, but the bank would probably charge 12% interest rate for the new loan and would again require the shareholder's personal guarantee.

Manufacturer data for the scanners indicate that they cost $1 million each and have a five-year useful life. The $1 million price includes all needed maintenance over the five-year period. The scanners would replace current equipment that has a current $100,000 net book value and $50,000 salvage value at each clinic.

Current equipment scans can only be billed at $100 per scan, but the market research indicates that Medicare will pay $500 for each 360-degree heart scan. Chief of cardiology thinks insurance companies will also pay at least that much. The scanners are highly energy intensive and electricity costs $10 per scan. Technician labor time for each scan is estimate at $90.

Chief of cardiology's examination of patient flow at the ten clinics indicates that the annual volume for the new scanners would be 700 scans per clinic. However, somewhat uncertain about this number and thinks it could be 20% higher or 20% lower.

Please help me to solve this problem:

1. Ignoring possible tax effects and rates, what is the appropriate discount rate to use in evaluating the proposed purchase? Why?

2. What is the most likely NPV for one scanner? What is the IRR for one scanner?

3. What are the NPVs and IRRs for the best - and worst-case volume estimates?

4. What are some nonquantitative factors to consider in this decision?

I appreciate you for all knowledge, advice, and guidance.