Question
The COO for Mountain Hospital believes that the Magnetic Resonance Imaging (MRI) machine at the hospital should be replaced, but does not want the current
The COO for Mountain Hospital believes that the Magnetic Resonance Imaging (MRI) machine at the hospital should be replaced, but does not want the current MRI machine to be down until the new machine is operational. A team of clinicians and administrators has evaluated several MRI options and decided to purchase a product from GE at a cost of $5 million. The new MRI is expected to last 7 years (life cycle), have utilization (number of patients) per year as shown in Table 3, and generate revenue of $3,200 per patient. In order to keep the current MRI machine in operation, the hospital will have to build a new MRI suite at a cost of $500,000. Assume Mountain Hospitals corporate cost of capital is 10%.
Year | # Patients |
1 | 100 |
2 | 150 |
3 | 150 |
4 | 150 |
5 | 150 |
6 | 150 |
7 | 150 |
What is the payback period for the new MRI? 5 points
What is the NPV for the project? What does this mean? 5 points
What is the IRR for the project? What does this mean? 5 points
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