A hospital is considering whether to invest in a new medical technology that has a 60% chance
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Question:
A hospital is considering whether to invest in a new medical technology that has a 60% chance of improving patient outcomes and a 40% chance of having no effect. The technology costs $2 million and has a useful life of 10 years. The hospital's current equipment has a remaining useful life of 10 years and no salvage value. The technology is expected to generate an additional $1 million in revenue per year for the next 10 years. However, there is a 30% chance that the technology will malfunction and require costly repairs, estimated at $500,000. The hospital's cost of capital is 8%. Should the hospital invest in the technology?
Please provide a detailed analysis, including calculations and a recommendation.
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