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Capital Budget Appraisal to Purchase New Equipment

A competitive hospital maintains current equipment and purchases new in order to stay current with the latest technology. If you were evaluating the capital budget performance of a hospital what factors would you consider justifying taking on more debt to purchase new equipment for a surgical unit?

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When deciding for a capital expenditure there are two options for the hospital:
1. Purchase the new equipment when there is additional volume which justifies the expenditure. In this case there is sufficient cash flow to handle the additional debt service.

2. Purchase the new equipment at the beginning of new business year or quarter which is closest to the time when the equipment is actually required ...

Solution Summary

Factors which should be considered when evaluating option of debt financing are discussed.