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    Payback period, net present value, annual rate of return

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    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.

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    Solution Preview

    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 ...

    Solution Summary

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

    $2.49

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