Question
XYZ hospital is considering investing $90,000 in new laundry equipment to replace its present equipment, which is completely depreciated and outmoded. An alternative to this
XYZ hospital is considering investing $90,000 in new laundry equipment to replace its present equipment, which is completely depreciated and outmoded. An alternative to this investment is a long-term contract with a local firm to perform the hospital's service. It is expected that the hospital would save $20,000 per year in operating costs if the laundry service was performed internally. Both the expected life and the depreciation life of the projected equipment are 6 years. Salvage value of the present equipment is expected to be zero. Assuming that XYZ can borrow or invest money at 8%, calculate the payback, the NPV, and the profitability index. Ignore any reimbursement effects.
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