Question
Sunny Rest, a not for profit nursing home, is considering changing all of their beds to air mattresses. Air mattresses have been shown to greatly
Sunny Rest, a not for profit nursing home, is considering changing all of their beds to air mattresses. Air mattresses have been shown to greatly reduce the incidence of pressure ulcers (bed sores) and can improve quality of care. In addition, these new beds would reduce operating costs by $950 per bed per year.
Each airbed is anticipated to cost $8,500 and would have a useful life of 10 years.
Sunny Rest currently has 100 licensed beds in its facility.
Moving in the new beds and disposing of the old beds would cost $50 per bed.
One time costs for replacing linens and other facility modifications to accommodate the new beds would be $100 per bed.
Sunny Rests current opportunity cost rate or rate they pay for financing is 4%.
- Detail the cash flows for the project.
- Calculate the NPV
- Should Sunny Rest buy the new beds? Why or why not.
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