Sister's Hospital is considering purchasing a new surgical robot to perform minimally invasive knee replacement surgical procedures. The hospital anticipates needing this equipment for the next 4 years to support their initiative to reduce costs and improve outcomes following this common procedure. You've been asked to evaluate this potential investment opportunity. To assist this effort you've collected the following information associated with this project.

The hospital expects to perform 1200 knee replacement procedures in the first year of ownership and, once word of the awesome new robotic surgical tool spreads throughout the region, they anticipate this volume to increase by 10% in each subsequent year.

Each robot assisted knee replacement surgery requires $475 in materials (including sterilization equipment and chemicals, disposable cutting tools, and suturing kits)

The system costs $3,250,000 and will be depreciated according to a 7 year MACRS schedule

Installation and set-up costs for the new system are $120,000

Calibration of the robot will be required each year to keep the machine in good working order. Calibration is estimated to cost $450,000 each year, with the first calibration occurring at the end of the first year of use.

The robot has a useful life of 4 years. At the end of this time its salvage value will be $1,890,000

Performing minimally invasive knee replacement surgeries will save the hospital $400 per patient due to shorter recovery times (and therefore fewer days of stay per patient) and $1,275,000 per year from the reduced procedure time (includes salaries, supplies, etc.)

Half of the total initial investment will be financed through a bank loan. This loan will have a rate of 10% per year with payments made at the end of each year for the next four years.

You've determined that an initial infusion of $120,000 of working capital is needed at the start of the project. This sum will be recovered in full at the end of the project.

The hospital's MARR is 13% Ordinary and capital gains are taxed at the combined marginal tax rate of 34%

(a) [1.5 point] The loan financing the purchase of the robotic surgical system will be repaid in equal installments over the four years of the project. Determine the amount of each annual payment and the amount of interest and principal paid in each installment.

(b) [2 point] Find the net income in each of the project's period. (Use template at the end)

(c) [2 point] Find the net cash flows for each of the project's period. (Use template at the end)

(d) [0.5 points] Use a net present worth approach and determine if this is a good (i.e. profitable) investment for the hospital.