1. A hospital is considering the purchase of a piece of medical equipment that costs $1,500,000 and has a useful life of five years and no salvage value at the end of its useful life. The equipment generates revenues of $650,000 per year and operating expenses of $300,000. Calculate NPV, payback, BCR, and IRR, should the equipment be purchased if the discount rate is 6% or 10%?
Revenue Expense
Year 0 - $1,500,000 (investment)
Year 1 $650,000 $300,000
Year 2 $650,000 $300,000
Year 3 $650,000 $300,000
Year 4 $650,000 $300,000
Year 5 $650,000 $300,000
2. A hospital is considering the purchase of a piece of medical equipment that costs $1,500,000 and has a useful life of five years and a salvage value of $250,000 at the end year five. The equipment generates revenues of $450,000 per year and operating expenses of $200,000. Calculate NPV, payback, BCR, and IRR, should the equipment be purchased if the discount rate is 6% or 10%?
Revenue Expense
Year 0 - $1,500,000 (investment)
Year 1 $450,000 $200,000
Year 2 $450,000 $200,000
Year 3 $450,000 $200,000
Year 4 $450,000 $200,000
Year 5 $450,000 $200,000