The radiology department at St. Joseph's Hospital, a not-for-profit, is considering purchasing a magnetic resonance imaging...

 

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The radiology department at St. Joseph's Hospital, a not-for-profit, is considering purchasing a magnetic resonance imaging (MRI) machine. The cost to purchase and install an MRI is approximately $2,000,000. Assume St. Joseph's would like a minimum 6 percent return and that the economic life of the MRI is expected to be 10 years, with no salvage value. Assume that if the MRI is installed, the net cash flows are expected to increase by $400,000 per year. Use Exhibit 26-4 for present value factors. Required: a. Find the NPV of the MRI. EXHIBIT 26-4 Present Value of a $1 Annuity Receivable Each Period for n Periods Present Value of $1 to Be Received Periodically for n Periods Number of Periods Discount Rate 1% 1%% 5% 6% 8% 10% 12% 15% 20% (n) 1 0.990 0.985 0.952 0.943 0.926 0.909 0.893 0.870 0.833 2 1.970 1.956 1.859 1.833 1.783 1.736 1.690 1.626 1.528 3 2.941 2.912 2.723 2.673 2.577 2.487 2.402 2.283 2.106 4 3.902 3.854 3.546 3.465 3.312 3.170 3.037 2.855 2.589 5 4.853 4.783 4.329 4.212 3.993 3.791 3.605 3.352 2.991 6 5.795 5.697 5.076 4.917 4.623 4.355 4.111 3.784 3.326 7 6.728 6.598 5.786 5.582 5.206 4.868 4.564 4.160 3.605 8 7.652 7.486 6.463 6.210 5.747 5.335 4.968 4.487 3.837 9 8.566 8.361 7.108 6.802 6.247 5.759 5.328 4.772 4.031 10 9.471 9.222 7.722 7.360 6.710 6.145 5.650 5.019 4.192 20 18.046 24 21.243 36 30.108 17.169 12.462 20.030 27.661 11.470 9.818 8.514 7.469 6.259 4.870 13.799 12.550 16.547 14.621 10.529 8.985 7.784 6.434 4.937 11.717 9.677 8.192 6.623 4.993 The radiology department at St. Joseph's Hospital, a not-for-profit, is considering purchasing a magnetic resonance imaging (MRI) machine. The cost to purchase and install an MRI is approximately $2,000,000. Assume St. Joseph's would like a minimum 6 percent return and that the economic life of the MRI is expected to be 10 years, with no salvage value. Assume that if the MRI is installed, the net cash flows are expected to increase by $400,000 per year. Use Exhibit 26-4 for present value factors. Required: a. Find the NPV of the MRI. EXHIBIT 26-4 Present Value of a $1 Annuity Receivable Each Period for n Periods Present Value of $1 to Be Received Periodically for n Periods Number of Periods Discount Rate 1% 1%% 5% 6% 8% 10% 12% 15% 20% (n) 1 0.990 0.985 0.952 0.943 0.926 0.909 0.893 0.870 0.833 2 1.970 1.956 1.859 1.833 1.783 1.736 1.690 1.626 1.528 3 2.941 2.912 2.723 2.673 2.577 2.487 2.402 2.283 2.106 4 3.902 3.854 3.546 3.465 3.312 3.170 3.037 2.855 2.589 5 4.853 4.783 4.329 4.212 3.993 3.791 3.605 3.352 2.991 6 5.795 5.697 5.076 4.917 4.623 4.355 4.111 3.784 3.326 7 6.728 6.598 5.786 5.582 5.206 4.868 4.564 4.160 3.605 8 7.652 7.486 6.463 6.210 5.747 5.335 4.968 4.487 3.837 9 8.566 8.361 7.108 6.802 6.247 5.759 5.328 4.772 4.031 10 9.471 9.222 7.722 7.360 6.710 6.145 5.650 5.019 4.192 20 18.046 24 21.243 36 30.108 17.169 12.462 20.030 27.661 11.470 9.818 8.514 7.469 6.259 4.870 13.799 12.550 16.547 14.621 10.529 8.985 7.784 6.434 4.937 11.717 9.677 8.192 6.623 4.993