Question
St. Elsewhere Hospital is considering two alternatives and analyzing their consequences over a 3-year period on the hospital budget. Alternative A = Hire a pharmacist
St. Elsewhere Hospital is considering two alternatives and analyzing their consequences over a 3-year period on the hospital budget. Alternative A = Hire a pharmacist Alternative B = Buy an automated drug delivery system machine Alternative As costs are $80,000 salary plus 20% for fringe benefits per year for the next 3 years. Alternative As savings are $120,000 per year for the next 3 years. Alternative Bs costs for the automated system are $200,000 for the first year, $30,000 for the second year, and $30,000 for the third year. Alternative Bs savings are $100,000 per year for each of the 3 years. Assuming a 5% discount rate applied at the end of the year, calculate: 1. The net benefit of hiring a pharmacist. 2. The net benefit of the automated system. 3. The benefit-to-cost ratio for hiring a pharmacist 4. The benefit-to-cost ratio for the automated system. Which option, alternative A or alternative B, would be chosen based on: 5. The net benefit calculations? Why? 6. The benefit-to-cost ratios? Why? 7. Is there need to consider other factors in making a decision regarding the choice of alternative? Why? 8. If you had to consider other factors in making your decision, suggest two such factors and state the effect these would have on your decision between alternative A and alternative B. Answer using present values tables.
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