An HIM department director is replacing an old dictation system with new equipment involving a $150,000 initial investment in equipment, installation & training.  The old equipment has no salvage value.  The new equipment is estimated to have a life of 10 years and an annual straight line depreciation of 1,200. The new equipment will result in annual savings of $30,000 in labor and maintenance costs and an estimated $32,000 in new revenues annually.  

Note: both savings and new revenues are incremental cash "inflows "so the "annual incremental cash inflow" for this project = $62,000 minus $1,200 (depreciation is an "outflow"): $60,800.  

1. What is the payback period for this capital project?   ___________
    Show calculations:
 
 2. What is the accounting rate of return (ARR) for this capital project?  ___________
    Show calculations:
 
3. If the healthcare organization's cost of capital is 8%, what is the NPV of this capital project?_________

NOTE:  From the PVA table you know that the PVA factor for i = 8% and n = 10 is 6.7101. 

Show calculations :
 
 
4. Based on your capital investment analysis, is this a good financial investment for this HCO (discuss answers to #1-3 above)?  

 
 5. If the HCO had another potential capital project X with a PI of 4 and this project had a PI of 3, would project X be a better choice for the organization to pursue? 

Answer rating: 100% (QA)

Capital Investment Analysis for New Dictation System 1 Payback Period To calculate the payback perio... View the full answer