Project Management: Project Valuation for Healthcare
Your senior design project is sponsored by a hospital. As part of the project, you are studying patient flow and utilization of an MRI machine. The hospital is condisering undertaking an investment in a new MRI machine. The hospital has been told by a General Electric salesperson the cost of the MRI machine will be $3.5 million today (at time=0). The new MRI machine is anticipated to save the hospital $1,000,000 per year in technician salary and supplies (the first annual savings is at the end of the first year). However, it will require an additional maintenance cost of $400,000 per year (starting at the end of the first year). As a result of an increase in revenue, annual income taxes will also increase by $150,000 per year (starting at the end of the first year). The MRI machine is expected to have a 10-year service life and will have a salvage value of $250,000 at the end of the service life. The hospital has told your project team that they have a company MARR value of 18% for all project investments. Using the Net Present Worth criterion, would you recommend the new MRI machine purchase to the hospital?
Net Present Worth (NPW at 18%) = $___?___
Should the hospital purchase the MRI machine? Yes or No