VI. The Gold Hospital currently sends it laboratory tests to an outside

laboratory for processing. The Gold Hospital is considering processing

the laboratory tests itself, instead of sending the laboratory tests to

the outside laboratory. The outside laboratory charges $75 per

laboratory test. If the Gold Hospital processes the laboratory tests

itself, it is estimated that the laboratory tests can be processed at a

variable cost of $65 per laboratory test. If the Gold Hospital

processes the laboratory tests itself, equipment with an estimated

useful life of 3 years must be purchased at a cost of $275,000. The

equipment will have an estimated salvage value of $0 at the end of 3

years. The Gold Hospital estimates that it will administer 10,000

laboratory tests in year 1, 11,000 laboratory tests in year 2, and

12,000 laboratory tests in year 3.

Required:

1. Determine whether the Gold Hospital should process the

laboratory tests itself. Assume that the Gold Hospital

requires a 7% return on its investment.