Problem 3

(Ignore income taxes in this problem.) Florida Hospital is considering the purchase of medical supply electronic delivery system that would cost $240,000 and would last for 8 years. At the end of 8 years, the system would have a salvage value of $50,000. The machine would reduce labor and other costs by $62,000 per year for 8 years. After 8 years, the hospital would need a larger system. Florida Hospitals cost of capital is 12%.

Required:

Based on net present value analysis, should the system be purchased? Please, show your work!