Watauga Medical Center is considering purchasing an ultrasound machine for $1,135,000. The machine has a 10-year life and an estimated salvage value of $40,000. Installation costs and freight charges will be $24,200 and $800, respectively. The Center uses straight-line depreciation.
The medical center estimates that the machine will be used five times a week with the average charge to the patient for ultrasound of $850. There are $10 in medical supplies and $40 of technician costs for each procedure performed using the machine.
Instructions
(a) Compute the payback period for the new ultrasound machine.
(b) Compute the annual rate of return for the new machine.