I am trying to determine operating cash flow for years 1, 2, 3 and 4 for...

I am trying to determine operating cash flow for years 1, 2, 3 and 4 for a company who is evaluating a new MRI machine. I calculated the revenue based on # of scans times the net revenue for each scan and got $900,000. Should this figure remain the same for years 2, 3, and 4 or does the neutral inflation rate of 2% need to be added to each?

Also, does depreciation, variable and fixed costs change with the 2% neutral inflation rate? I am thinking that fixed costs and depreciation will not change.

1) Assume Bloomington Indiana Mellencamp Health System, a not-for profit hospital, is evaluating a new MRI.
2) Cost
	Purchase price	$500,000
	Shipping and Install	$80,000
3) Expected life		5 years
4) Salvage Value		$250,000
5) Utilization		6000 scans per year
6) Net Revenue		$150 per scan
7) Variable Cost		$75 per scan
8) Fixed cost		$150,000
9) Corporate cost of capital		12%
Using 2% as neutral inflation rate

Solutions

Expert Solution

Revenue, variable costs and fixed costs (excluding deprecition) shall increase by 2% inflation rate every year.Depreciation will remain same.

ekkarill92 answered 1 year ago

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