Question

Key West Hospital is considering investing in a new CT scanner which has improved images and requires less use of contrast media for some scans.

The cost of the machine is $1.5 million and it will require $300,000 of renovation and installation cost.

The machine is capable of doing 1700 scans per year, but it is estimated that the first year demand will be about 1,300 scans.

The market suggest that volume will grow about 8% per year until capacity is reached.

Taking into consideration all payers, the average net revenue per scan is $900, but because of pressure in the market that rate will not change in the forseeable future.

It will take two technicians to run the machine (regardless of volume) at an average cost including benefits of $75,000 (for each tech) per year. Compensation is expected to inflate at 3% per year.

Supplies are expected to be about $300 per scan, with an annual inflation expectation of 2.0%.

The machine will have a full warranty for the first year, but will then require a maintenance contract for years 2-5. The price of the maintenance contract will be 2% of the purchase price, paid annually.

Expected life of item is 5 years, with a $25,000 salvage value

Corporate cost of capital 11.5%

Question: Calculate the NPV, IRR and MIRR for a 5 year projection

Answer 1

1700 1516 900 312 3 Max capacity 4 Demand 5 Average net revenue 6 Supplies 1700 1700 1404 900 1700 1638 900 318 1700 1769 900 900 10Year 11 (Cost)/Salvage value 12 Revenue 13 Technicial cost 14 Supplie cost 15 Maintenance cost 16 Tax 17 Cash flow 18 NPV 19 IRR 20 MIRR 1170000 1263600 1364688 1473863 1530000 150000 154500 159135 -163909.1 -168826.3 390000 -429624 -473273.8 -521358.4-552040.4 0 30000 -30000 30000 30000 -120000 -111000 111000 -111000 118500 1800000 510000 538476 591279.2 647595.57 685633.28 333914.61 15.36%

1700 D4 1.08 900 D6 1.02 1700 G4 1.08 900 -G6 1.02 Max capacity Demand Average net revenue Supplies 1700 1300 900 1700 F4 1.08 900 -F6 1.02 -E4 1.08 900 -E6 1.02 6 10 Year 11 Cost)/Salvage value1.5*10*6-300000 12 13 14 Supplie cost 15 25000 -MIN(H3,H4) H5 -G13 1.03 --MIN(H3,H4) H6 -MIN D3,D4) D5 :-75000 2 -MIN(G3,G4) G5 -F13 1.03 --MIN(G3,G4)"G6 Revenue Technicial cost -MIN(E3,E4)"E5 D13 1.03 --MIN(E3,E4) E6 -15-10^6.2% =-(E15+2000000/5-E11)"30% -SUM(E11:E16) MIN(F3,F4)-F5 -E13 1.03 MIN(D3,D4) D6 -MIN(F3,F4) F6 -15.10^6.2% --(F15+2000000/5+F11)"30% -SUM(F11:F16) -1.5. 10"6.2% 刊G15+2000000/5+G11)"30% -SUM(G11:616) -1.5* 10^6.2% =-(H15+2000000/5+H11)"30% -SUM(H11:H16) Maintenance cost Tax Cash flow 刊015+2000000/5+D11)"30% -SUM(D11D16) 17 18 NPV 19 20 21 -SUM(C11:C16) -NPVİ 11,5%,D17:H 17)-C17 -IRR(C17:H17) aMIRR(C17M 17,11.5%,11.5%) IRR MIRR