The Ward County Hospital Center (WCHC) wants to buy a new mobile primary care va

Question

The Ward County Hospital Center (WCHC) wants to buy a new mobile primary care van to use in screening residents in an underserved local neighborhood. The van will last 5 years and costs $68,000. WCHC will pay for the acquisition and maintenance of the van partially from foundation grants and partially from receipts from the county health department. The county has agreed to reimburse WCHC $15 for each patient it screens using the new van. They expect to have 800 patients per year with the van. It will cost $3000 per year to maintain the vehicle, which includes all relevant costs. How much will the WCHC need in foundation grants this year to make the purchase break-even financially?

Explanation / Answer

cost of van = 68000

revenue from wchc = 800 * 15 = 12000

cost per year = 3000

cash flow from WCHC = 12000 - 3000 = 9000   

Present value of these cash flows

= 9000 * [1-(1.05)^-5]/0.05

= 38965.29

so the payments fo county is not sufficient

so we need foundation grant to break even

foundation grant = cost of vehicle - PV of cash flows

= 68000 - 38965.29

= 29034.71

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