Question
The Gunninson Hospital is considering the purchase of a new MRI scanning machine. The new machine can be purchased for $575,000. The purchase of this
The Gunninson Hospital is considering the purchase of a new MRI scanning machine. The new machine can be purchased for $575,000. The purchase of this machine is expected to save the hospital $230,000 per year by increasing revenues and by decreasing labor and utilities cost. It will cost $15,000 to reinforce the floor where the machine would be placed, $10,000 to install the machine, and $5,000 to get it shipped to the hospital. This machine would necessitate an increase in inventory of $14,000, an increase in accounts receivable of $10,000, and an increase in accounts payable of $7,500 over the lifetime of the machine. This machine will have an expected useful life of only 4 years, due to the quickly changing technology, at which time it could most likely be sold to a smaller facility for $85,000. It would be depreciated using an MACRS class life of 5 years (20%, 32%, 19%, 12%, 11%, and 6%).
The firm has a marginal tax rate of 30%. Calculate all the appropriate incremental cash flows for this project. (Please Show Work)
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