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Memorial Hospital is considering the acquisition of a new diagnostic scanning machine. The investment required to get the machine operational will be $1,891,000. The machine
Memorial Hospital is considering the acquisition of a new diagnostic scanning machine. The investment required to get the machine operational will be $1,891,000. The machine will be capable of performing 9,000 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 12\%; the machine has an estimated useful life of nine 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 12%. (Hint. The annual net cash flow requirement is an annulty.) b. If the direct cash costs of operating the scanner equal 52% 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 12% ROI? Note: Round your intermediate calculations to 2 decimal places. Note: For all requirements, round your answer to the nearest whole dollar amount. Table 6-5: Factors for Calculating the Present Value of an Annuity of $1
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