Humana Hospital Corporation installed a new MRI machine at a cost of $770,000 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 $120,000. Humana uses a return requirement of 24% 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.
ANSWER:
I = 24%
N = 5
Salvage value = $120,000
Initial cost = $770,000
In order to find the annual revenues we will equate the pw to zero at 24% interest rate.
pw = initial cost + annual revenue(p/a,i,n) + salvage value(p/f,i,n)
0 = - 770,000 + annual revenue(p/a,24%,5) + 120,000(p/f,24%,5)
770,000 = annual revenue * 2.7454 + 120,000 * 0.3411
770,000 = annual revenue * 2.7454 + 40,932.93
770,000 - 40,932.93 = annual revenue * 2.7454
729,067.07 = annual revenue * 2.7454
annual revenue = 729,067.07 / 2.7454
annual revenue = 265,561.015
so the annual revenue is $265,561.015
Humana Hospital Corporation installed a new MRI machine at a cost of $770,000 this year in...
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