The Hogwarts Hospital has an old MRI machine and an outdated computer system, and they are considering purchasing their options:

Information to help in their decision is as follows:

MRI machine:

cost:

$875,000

Number of MRI's performed each year:

8200

expected labor savings due to more efficient machine: $40 per patient

life of new machine:

5 years

Computer system

cost:

$600,000

expected cost savings per year with new system:

$110,000

life of computer system

6 years

Hogwart's cost of borrowing (cost of capital) 8%

REQUIRED:

A) WHAT IS THE PAYBACK FOR THIS NEW MRI MACHINE?

B) WHAT IS THE NET PRESENT VALUE OF THIS NEW MRI MACHINE?

C) FROM A PURELY FINANCIAL PERSPECTIVE SHOULD HOGWARTS CONSIDER ACQUIRING THE NEW MRI MACHINE?

D) WHAT OTHER CONSIDERATIONS SHOULD HOGWARTS LOOK AT IN DECIDING WHETHER OR NOT TO ACQUIRE THE MRI MACHINE.

D) WHAT IS THE PAYBACK FOR THE COMPUTER SYSTEM?

E) WHAT IS THE NET PRESENT VALUE OF THE COMPUTER SYSTEM

F) FROM A PURELY FINANCIAL PERSPECTIVE, SHOULD HOGWARTS' CONSIDER ACQUIRING THE NEW COMPUTER SYSTEM?

G) HOGWARTS ONLY HAS THE RESOURCES TO ACQUIRE AT MOST 1 OF THESE ITEMS; WHICH (IF ANY ) DO YOU RECOMMEND?

JUSTIFY YOUR ANSWER IN A MEMO TO THE DR. GANDOFF, CEO OF HOGWARTS