# Payback period, net present value, annual rate of return

Newman Medical Center is considering purchasing an ultrasound machine for $1,150,000. The machine has a 10-year life and an estimated salvage value of $30,000. Installation costs and freight charges will be $19,200 and $800, respectively. The center uses straight-line depreciation. Newman's cost of capital is 9%.

The medical center estimates that the machine will be used five times a week with the average charge to the patient for ultrasound of $775. There are $5 in medical supplies and $20 of technician costs for each procedure performed using the machine. The present value of an annuity factor for 10 years at 9% is 6.41766, and the present value of a single sum factor for 10 years at 9% is .42241

Instructions

1. For the new ultrasound machine, compute the:

(a) cash payback period.

(b) net present value.

(c) annual rate of return.

https://brainmass.com/business/the-time-value-of-money/payback-period-net-present-value-annual-rate-of-return-39293

#### Solution Preview

Newman Medical Center is considering purchasing an ultrasound machine for $1,150,000.Â Â The machine has a 10-year life and an estimated salvage value of $30,000.Â Â Installation costs and freight charges will be $19,200 and $800, respectively.Â Â The center uses straight-line depreciation.Â Â Newman's cost of capital is 9%.

The medical center estimates that the machine will be used five times a week with the average charge to the patient for ultrasound of $775.Â Â There are $5 in medical supplies and $20 of technician costs for each procedure performed using the machine. The present value of an annuity factor for 10 years at 9% is 6.41766, and the present value of a single sum factor for 10 years at 9% is .42241

Instructions

1.Â Â For the new ultrasound machine, compute the:

(a) cash payback period.

(b) net present value.

(c) annual rate of ...

#### Solution Summary

Computes the cash payback period, net present value, annual rate of return.