Problem
You are requesting approval of a capital expenditure for a new dictation system. The cost of the system is $65,000.00. You expect that the system will save the HIM Department $20,000.00 per year by eliminating the cost of outside contract transcription. You anticipate the system life will be 5 years. Your facility uses straight line depreciation for the life of any capital expenditure. Assume that Management requires the use of a net present value (NPV) of capital at 10%. Use the NPV show in the table below to complete the following:
a) Calculate the net cash flow.
b) State if the dictation system meets the criteria to have a 10% return and exceed the initial capital outlay?
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Net Present Value at 10%
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Years
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Net Cash Flow
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Factor for NPV at 10%
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Present Value of Cash Flow
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1
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$0.909091
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2
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$0.826446
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3
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$0.751315
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4
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$0.683013
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5
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$0.620921
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