Question

19. (Mod. 6) ABC Hospital is a non-profit entity that does not have to pay income taxes. Management is considering buying an automated blood analysis machine that will significantly reduce the time a lab technician spends working on a blood sample. The machine will cost $80,000.00. Unfortunately, the machine’s operating life is somewhat short, and management expects it will be discarded (no salvage value) at the end of four years. During its four year operating life, however, expected savings in annual variable costs should amount to roughly $30,000.00 (measured at the end of each year). If it purchases the machine, the company will have to borrow the entire $80,000 at an annual interest rate of 8% (APR).

Complete and submit an EXCEL worksheet, showing your work, and answers highlighted in yellow,
(a) the present value of the expected overall savings in operating costs during the four years if the machine is purchased.
(b) the Internal Rate of Return on this investment.
(c) a narrative indicating whether, based on the calculations in (a) and (b), whether purchasing the machine makes sense.

Answer 1

Answer is given below

NPV and IRR calculation Screen shot is given for excel formula