Question

Key West Hospital is considering investing in a new CT scanner which has improved images and requires less use of contrast media for some scans.

The cost of the machine is $1.5 million and it will require $300,000 of renovation and installation cost.

The machine is capable of doing 1700 scans per year, but it is estimated that the first year demand will be about 1,300 scans.

The market suggest that volume will grow about 8% per year until capacity is reached.

Taking into consideration all payers, the average net revenue per scan is $900, but because of pressure in the market that rate will not change in the forseeable future.

It will take two technicians to run the machine (regardless of volume) at an average cost including benefits of $75,000 (for each tech) per year. Compensation is expected to inflate at 3% per year.

Supplies are expected to be about $300 per scan, with an annual inflation expectation of 2.0%.

The machine will have a full warranty for the first year, but will then require a maintenance contract for years 2-5. The price of the maintenance contract will be 2% of the purchase price, paid annually.

Expected life of item is 5 years, with a $25,000 salvage value

Corporate cost of capital 11.5%

Question: Calculate the NPV, IRR and MIRR for a 5 year projection

Answer 1