Case Study Progressive Hospital is considering the purchase of a new Sidewinder scanner, which costs $3,000,000....

 

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Case Study Progressive Hospital is considering the purchase of a new "Sidewinder" scanner, which costs $3,000,000. The new scanner provides a 360-degree internal feature view of the organ or body part being scanned, with no radiation exposure. The medical staff estimates that the technology will last five years before it will need to be replaced with newer technology. The equipment will have no salvage value. Scan volume has been estimated as follows: Year 1 10,000 100 Year 2 12,000 Year 3 15,000 Year 4 15,000 Year 5 15,000 Average billing price is estimated to be $100 per scan. The scanner will have fixed operating costs of $350,000 per year and variable operating costs of $10 per scan. (1) What is the payback period for the scanner? No inflation I salvage value (2) What is the NPV for the investment assuming a 10 percent hurdle rate for capital investments. (3) What is the IRR for the project? (4) Is the project profitable if volume turns out to be only 95% of the projection? (5) Would the project be financially profitable at a 95% volume level if the equipment has a $500,000 salvage value? (6) Ignoring the conditions in question 4 and 5 what if Progressive hospital adjusts its 10% hurdle rate +2 percent for high risk projects or -2 percent for low-risk projects, and the "Sidewinder" project is judged to be low risk? (7) Should the scanner be purchased? Discuss. No inflation Case Study Progressive Hospital is considering the purchase of a new "Sidewinder" scanner, which costs $3,000,000. The new scanner provides a 360-degree internal feature view of the organ or body part being scanned, with no radiation exposure. The medical staff estimates that the technology will last five years before it will need to be replaced with newer technology. The equipment will have no salvage value. Scan volume has been estimated as follows: Year 1 10,000 100 Year 2 12,000 Year 3 15,000 Year 4 15,000 Year 5 15,000 Average billing price is estimated to be $100 per scan. The scanner will have fixed operating costs of $350,000 per year and variable operating costs of $10 per scan. (1) What is the payback period for the scanner? No inflation I salvage value (2) What is the NPV for the investment assuming a 10 percent hurdle rate for capital investments. (3) What is the IRR for the project? (4) Is the project profitable if volume turns out to be only 95% of the projection? (5) Would the project be financially profitable at a 95% volume level if the equipment has a $500,000 salvage value? (6) Ignoring the conditions in question 4 and 5 what if Progressive hospital adjusts its 10% hurdle rate +2 percent for high risk projects or -2 percent for low-risk projects, and the "Sidewinder" project is judged to be low risk? (7) Should the scanner be purchased? Discuss. No inflation