PROBLEM 2
Mid-State Medical Center wishes to upgrade their in-house MRI to a 3 Tesla magnet, which gives sharper pictures and
should reduce the time it takes to complete a procedure. You have gathered the following details on the potential
investment:
The cost to buy and install the new scanner is $1.3 million. The scanner is expected to last seven years and it should have a salvage value of $175,000 at the end of its useful life.
The medical center expects to provide 12 scans per day throughout the life of the scanner. Net revenue per scan in year one is expected to be $450 per scan and is expected to increase 4% per year.
Salaries per scan are expected to be $130 per scan and benefits will be 30% of salaries. Salaries are projected to increase 3% per year. Benefits as a percent of salaries will remain at 30% for each year.
Supplies per scan will total $100 per scan in year 1 and increase 3% per year.
Maintenance will be a fixed $120,000 per year in the first year and increase 3.5% per year.
The MRI department will have $84,000 per year in overhead expenses for housekeeping, room maintenance, laundry, and utilities. Those costs will increase by 3% per year.
Calculate the cash flows associated with this proposed project.