Question

A Hospital is trying to determine the payback period for a piece of X-Ray equipment it is purchasing. The assumptions are as follows: Purchase price of equipment $350,000. Useful life of the equipment = 7 years. Revenue the machine will generate per year $9,000. Direct operating costs associated with earning revenue $125,000 Depreciation expense per year = $50,000. Find the machine's expected net income Find the annual cash inflow the machine is expected to generate a. b. Compute the payback period C.

Answer 1

	Machine's expected net income
	Total Annual Revenue				$               63,000
	=(7Years *9000)
	Less: Total Annual Expenses				$          -1,25,000
	Subtotal				$             -62,000
	Less: Machine Cost				$          -3,50,000
	Machine's Expected Net Income				$          -4,12,000
	Machine's Expected Net Income (per Year)				$             -58,857
	(-412000/7)
	Annual Cash Inflow
	= Annual Revenue - Annual Operating Costs
	= 9000 - ($125000/7)
	=9000-17857.14
	$ -8,857.14
	Payback Period
	The hospital cannot recover its purchase price during the useful life of the equipment.
	Because the annual cash inflow is negative
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