In this example you need to determine the difference in net income between the new and the old machine. That will be the number you divide into the cost

of the CT scanner.

You are the head of a hospital imaging department. The CFO of the hospital asked for a list of capital needs from all departments.

You want to submit a request for a new 64 slice CT scanner

The cost is $1,710,000

You can get $95,000 for your old scanner (This is the salvage amount for your old scanner so it decreases the cost of the new scanner by this amount.)

One time cost of training on the new machine is $10,000

Installation cost is $30,000.

Operating costs for the present machine are $30 per procedure.

Operating costs for the new machine are $10 per procedure.

Your department averages 20 procedures per day now.

The new machine is more efficient which will increase the number of patients served by 5 a day.

You presently charge $200 per procedure but Medicare and your managed care contracts pay you only 85% of charges. They make up 80% of patients.

Complete the Excel sheet below for this proposal. Use formulas whenever possible. Let Excel do the work!

Cost

Purchase Price

Salvage

Training

Installation

Total

Old Machine

Revenue

Revenue

Daily

Per Scan

Volume

Revenue

Medicare

Self Pay

Total Revenue/day

Cost

Daily

Per Scan

Volume

Cost

Cost

Daily Net Income

New Machine

Revenue

Revenue

Daily

Per Scan

Volume

Revenue

Medicare

Self Pay

Total Revenue/day

Cost

Daily

Per Scan

Volume

Cost

Cost

Daily Net Income

Increase in Net Income/day

Increase in Net Income/year

Payback period

Payback period = Total cost of capital item divided by increase in annual net income