The Radiology Department at St. Josephs Hospital, a not-for-profit, is considering purchasing a magnetic resonance imaging (MRI)

Question:

The Radiology Department at St. Josephâ€™s Hospital, a not-for-profit, is considering purchasing a magnetic resonance imaging (MRI) machine. The cost to purchase and install an MRI is approximately $2,000,000. Assume St. Josephâ€™s would like a minimum 8 percent return and that the economic life of the MRI is expected to be 10 years, with no salvage value. Assume that if the MRI is installed, the net cash flows are expected to increase by $300,000 per year. Use Exhibit 26â€“4 for present value factors.

In Exhibits 26â€“4

a. Find the NPV of the MRI.
b. Should the hospital acquire the MRI?
c. What nonfinancial considerations might be important to the MRI investmentdecision?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...