Required information Humana Hospital Corporation installed a new MRI machine at

Question

Required information Humana Hospital Corporation installed a new MRI machine at a cost of $790,000 this year in its medical professional clinic in Cedar Park. This state-of-the-art system is expected to be used for 5 years and then sold for $125,000 Humana uses a return requirement of 22% per year for all of its medical diagnostic equipment. As a bioengineering student currently serving a Co-op semester on the management staff of Humana Corporation in Louisville, Kentucky, you are asked to determine the minimum revenue required each year to realize the expected recovery and return. What is your answer? The minimum revenue required each year to realize the expected recovery and return is $

Explanation / Answer

At breakeven ,NPV is zero which means present value of future cash inflow is equal to initial cost.

Present value of future cash flow =Initial cost = 790000

Present value =[PVA 22%,5*annual cash flow ] +[PVF 22%,5*Sale value]

790000       = [2.86364*x]+[.37000*125000]

790000 = 2.86364 x+ 46250

790000-46250 =2.86364 x

   x = 743750 /2.86364

        =$ 259721.89

minimum revenue = 259721.89

**find present value annuity factor and present value factor from table respectively at 22% ,for 5 years .

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