Question
Lake Regional Hospital is considering the acquisition of a new diagnostic scanning machine. The investment required to get the machine operational will be $1,893,000. The
Lake Regional Hospital is considering the acquisition of a new diagnostic scanning machine. The investment required to get the machine operational will be $1,893,000. The machine will be capable of performing 8,300 scanning procedures per year, but based on the experience of other hospitals, management estimates that the machine will be used at 80% of its capacity. The hospital's cost of capital is 10%; the machine has an estimated useful life of seven years and no salvage value. Use the appropriate factors from Table 6-5 to answer the following questions. |
Required: |
(a) | Assuming a constant cash flow every year, calculate the annual net cash flow required from the scanner if the IRR of the investment is to equal 10%. (Hint: The annual net cash flow requirement is an annuity.)(Round pv factor to 4 decimal places and the final answer to the nearest dollar amount. Omit the "$" sign in your response.) |
Annuity required | $ |
(b) | If the direct cash costs of operating the scanner equal 50% of the annual net cash flow requirement calculated in part a, what price should the hospital charge per scanning procedure in order to achieve an 10% ROI? (Intermediate calculations and the final answer to the nearest dollar amount. Omit the "$" sign in your response.) |
Price per scanning procedure |
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