Santa Cruz Community Hospital is considering investing $90,000 in new laundry eq

Question

Santa Cruz Community Hospital is considering investing $90,000 in new laundry equipment to replace its present equipment, which is completely depreciated and outmoded. An alternative to this investment is a long-term contract with a local firm to perform the hospital's laundry service. It is expected that the hospital would save $20,000 per year in operating costs if the laundry service was performed internally. Both the expected life and the depreciable life of the projected equipment are 6 years. Salvage value of the present equipment is expected to be zero. Assuming that Santa Cruz Community Hospital money at 8%, calculate the payback, the NPV, and the profitability index. Ignore any reimbursement effects.

Explanation / Answer

Answer:

Payback period= 90000/20000=4.5 years

Profitibility index= PV of cash inflows/Intial investment

=92454/90000

=1.027

Particulars Years P.V.F (8%) Amount ($) PV ($) New laundry equipment 0 1 -90000 -90000 Saving in operating cost 1 0.9259 20000 18518 2 0.8573 20000 17146 3 0.7938 20000 15876 4 0.735 20000 14700 5 0.6805 20000 13610 6 0.6302 20000 12604 NPV 2454

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.