Would someone please help me with questions 1 & 2 thank you.

HBSP Product Number TCG THE CRIMSON PRESS cURRICULUM CENTER THE CRIMSON GROUP, INC. Erie Hospital Dr. Christian Larson,Chief of Cardiology at Erie templating the proposal. performed on different. less efficient equipment. The purchase price was $300,000, delivered a BACKGROUND a Erie Hospital was a nonprofit, university.affiliated medical center, Lake Erie number of specialties and 350-bed tion, located on the shores of with a in Cleveland, had been in ex some 40 years. Although it treated patients variety of problems, its distinguishing specialty was cardiology. where itself on having the latest in services the rapid taking in the field of cardiology,maintaining the hospital's cutting-edge position required rather constant upgrading of its facilities and equipment Due to third-party payments (DRGs), ie. a single payment to the hospital for each patient, based on that patient's discharge diagnosis, there had been pressures on the hospital's "bottom line." Although some of Erie's equipment and were for and could be with research for clinical purposes had to be financed from patient care revenues only. Because of the increased nancial pressures, th was taking a harder and harder look at all capital equipment propos als designated for patient care purposes. THE REQUEST In the case of Dr. Michaels' request, the equipment was for patient care purposes. No grant funds were available, and hence the cost would need to be financed from patient care revenues, Dr Michaels had worked closely with the equipment manufacturer to determine the potential benefits of the new equipment, however, and she estimated that it would result in annual savings of $60,000 in labor and other direct costs, as with the present equipment. She also estimated that the ic life was 10 years, with zero salvage value proposed equipment's borrowed long-tem to finance another project. Paul Hershenson, the The hospital had recently Vice President of Fiscal Affairs, had informed Dr. Larson that, because of this. he was certain the hospital could obtain additional funds at 12 percent, although he would not plan to negotiate a loan specifically for the purchase of this equipment. He did feel, however, that an investment of this type should have a retum of at least 20 percent, even though the hospital paid no taxes. The hospital's capital structure is shown in Exhibit l COMPLICATING FACTORS There were three complications. First, the present equipment was in good working order and probably would last, physically, for at least more years Second, this request was for what Dr. Michaels called "even better equipment to replace ormed Dr. Larson that the new equipment would render the existing equipment completely obsolete with no resale value. This case was prepared by Professor David W. Young. It is intended as a basis for class discussion and not to il trate either effective or ineffective handling of an Copyright 2014 by The Crimson Group, Inc. To order copies or request permission to reproduce this d contact Harvard Business Publications (http:/hbsp harvard edu). Under provisions of United States and interna tional copyright laws, no part of this document may be reproduced, stored, or transmitted in any form or by any means without written permission from The Crimson Group (www.thecrimsongroup org) HBSP Product Number TCG THE CRIMSON PRESS cURRICULUM CENTER THE CRIMSON GROUP, INC. Erie Hospital Dr. Christian Larson,Chief of Cardiology at Erie templating the proposal. performed on different. less efficient equipment. The purchase price was $300,000, delivered a BACKGROUND a Erie Hospital was a nonprofit, university.affiliated medical center, Lake Erie number of specialties and 350-bed tion, located on the shores of with a in Cleveland, had been in ex some 40 years. Although it treated patients variety of problems, its distinguishing specialty was cardiology. where itself on having the latest in services the rapid taking in the field of cardiology,maintaining the hospital's cutting-edge position required rather constant upgrading of its facilities and equipment Due to third-party payments (DRGs), ie. a single payment to the hospital for each patient, based on that patient's discharge diagnosis, there had been pressures on the hospital's "bottom line." Although some of Erie's equipment and were for and could be with research for clinical purposes had to be financed from patient care revenues only. Because of the increased nancial pressures, th was taking a harder and harder look at all capital equipment propos als designated for patient care purposes. THE REQUEST In the case of Dr. Michaels' request, the equipment was for patient care purposes. No grant funds were available, and hence the cost would need to be financed from patient care revenues, Dr Michaels had worked closely with the equipment manufacturer to determine the potential benefits of the new equipment, however, and she estimated that it would result in annual savings of $60,000 in labor and other direct costs, as with the present equipment. She also estimated that the ic life was 10 years, with zero salvage value proposed equipment's borrowed long-tem to finance another project. Paul Hershenson, the The hospital had recently Vice President of Fiscal Affairs, had informed Dr. Larson that, because of this. he was certain the hospital could obtain additional funds at 12 percent, although he would not plan to negotiate a loan specifically for the purchase of this equipment. He did feel, however, that an investment of this type should have a retum of at least 20 percent, even though the hospital paid no taxes. The hospital's capital structure is shown in Exhibit l COMPLICATING FACTORS There were three complications. First, the present equipment was in good working order and probably would last, physically, for at least more years Second, this request was for what Dr. Michaels called "even better equipment to replace ormed Dr. Larson that the new equipment would render the existing equipment completely obsolete with no resale value. This case was prepared by Professor David W. Young. It is intended as a basis for class discussion and not to il trate either effective or ineffective handling of an Copyright 2014 by The Crimson Group, Inc. To order copies or request permission to reproduce this d contact Harvard Business Publications (http:/hbsp harvard edu). Under provisions of United States and interna tional copyright laws, no part of this document may be reproduced, stored, or transmitted in any form or by any means without written permission from The Crimson Group (www.thecrimsongroup org)