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Exercise 16-28 (Algo) Interpretation of present value analysis-calculate annual cash flow LO 166,167 Memorial Hospital is considering the acquisition of a new diagnostic scanning machine.
Exercise 16-28 (Algo) Interpretation of present value analysis-calculate annual cash flow LO 166,167 Memorial Hospital is considering the acquisition of a new diagnostic scanning machine. The investment required to get the machine operational will be $1,897,000. The machine will be capable of performing 8,400 scanning procedures per year, but based on the experience of other hospitals, management estimates that the machine will be used at 80% of its capacity. The hospital's cost of capital is 10%; the machine has an estimated useful life of six years and no salvage value. Table 65. Note: Use appropriate factor(s) from the table provided. Required: a. Assuming a constant cash flow every year, calculate the annual net cash flow required from the scanner if the IRR of the investment is to equal 10%. (Hint: The annual net cash flow requirement is an annuity.) b. If the direct cash costs of operating the scanner equal 54% of the annual net cash flow requirement calculated in part a, what price should the hospital charge per scanning procedure in order to achieve a 10%ROl ? Note: Round your intermediate calculations to 2 decimal places. Note: For all requirements, round your answer to the nearest whole dollar amount. able 6-5: Factors for Calculating the Present Value of an Annuity of $1
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