Question

14.7 California Health Center, a for-profit hospital, is evaluating the pur- chase of new diagnostic equipment. The equipment, which costs $600,000, has an expected life of five years and an estimated pretax salvage value of $200,000 at that time. The equipment is expected to be used 15 times a day for 250 days a year for each year of the project's life. On average, each procedure is expected to generate $80 in collections, which is net of bad debt losses and contractual allowances, in its first year of use. Thus, net revenues for Year 1 are estimated at 15 x 250 x $80 - $300,000. Labor and maintenance costs are expected to be $100,000 during the first year of operation, while utilities will cost another $10,000 and cash overhead will increase by $5,000 in Year 1. The

Answer 1

Year Equip. Cost Net Rovenue less! labour cost Unhlen last Supplies (25081585) Incremental allt Depreciation : i Operating Inom 8600,000 - - - - 300,000 315,000 330,250 347,286 364,652 100.000 108,000 1110.250 1115,763 121,551 - 10.000 | 10,500 11,025 | 14,576 12,155 18,950 19,668 | 20,672 | 21,705 | 22,791 Tax | 5000 | 5,250 I5513 5788 | 6078 20000 128,000 76000 48000 44000 186,250 46,562 |103,290 144,456 158,077 634,507 ) (8,625) (42916) (59,782) 663,239 Isaso | 27,937 164,374 186,674/94,846 80,000 123,000 76000 48000 uuooo 209000 118.1,757 155937 140,374 134,674338,846 Net Operation ineum (t) Depreciation + Salvaje 'telsel Net Cosa flow Pu@10°!,1 650591,9,21328,874 105,465 11,984 210,397 NPV = $ 56,493

% Therefore, IRR = 18.15 ) 2.5% 15นไป 9Iot6 โet'96 OG'เz| %%% 9 || (906 099) °C) O (ดๆ 5.) 99n191 09ะ 8500b แ6t( S9s" !! , . 5 โe รกร 89 9 6 5950 htt* h) ht95Zl tt6ss) tetol | 0SE) | (690) @ เSl, NPL (sbob5p) @ 10% (65) Soo) Cash flow 0 Year NRU nda