Seven years has passed since Samuel Adams Healthcare Center (SAHC) bought the machine to detect a certain heart condition. Their original machine is being retired, and they want to buy a new machine. The cost to buy the new machine from their original vendor, BR Medicals, is $300,000, and it will have a salvage value of $18,000 after a useful life of 7 years. Altogether, the costs associated with clinical labor and direct materials are estimated to be 8% less than the previous the old machine, because the new machine would be more efficient. The old machine costs were approximately $250 per procedure. Materials costs for BR Medicals’ new machine are estimated to be 40% of its total variable costs (this information will become relevant in the next paragraph). However, there is now a new company in the market, Indiana Medical Solutions (IMS), which is selling a similar machine that can detect the same heart condition. The price of their equipment is $600,000, but they claim to have an innovative system that produces less waste; as a result, they promise that the material costs for each procedure will be cut in half relative to the BR Medicals machine. The salvage value for the IMS machine is $36,000 after a useful life of 8 years. The expected price charged to patients is $265 per procedure, no matter which alternative is chosen. They are planning to conduct, on average, 250 procedures per month. Q6. Fill in the following table, containing the initial investment and all the costs and revenues/benefits associated with the two alternatives. (To maximize the possibility of partial credit, also show your work and the equations needed to calculate these values.)
BR Medicals Machine | IMS Machine
Initial investment
Annual expenses
Annual revenues
Salvage value
Useful lifetime, in years