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Austin General Hospital is evaluating new lab equip- ment. The interest rate is 12% and in each case the equipment's useful life is 5 years. Use NPW analysis to pick which company you should purchase from. Company A First cost D&M costs Annual benefit Salvage value $13,500 $20,000 $15,000 1,500 1,800 1,100 9,500 11,000 9,000 3,500 6,000 4,000

Austin General Hospital is evaluating new lab equip- ment. The interest rate is 12% and in each case the equipment's useful life is 5 years. Use NPW analysis to pick which company you should purchase from. Company A First cost D&M costs Annual benefit Salvage value $13,500 $20,000 $15,000 1,500 1,800 1,100 9,500 11,000 9,000 3,500 6,000 4,000

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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### Evaluation of Lab Equipment Options at Austin General Hospital **Introduction** Austin General Hospital is considering the purchase of new laboratory equipment. The decision involves evaluating three different companies offering equipment with varying costs and benefits. The financial analysis will be conducted using Net Present Worth (NPW) to determine the most cost-effective option. **Parameters for Evaluation** - **Interest Rate:** 12% - **Useful Life of Equipment:** 5 years **Table: Financial Details** | **Company** | **A** | **B** | **C** | |-------------|-----------|-----------|-----------| | **First Cost** | $13,500 | $20,000 | $15,000 | | **O&M Costs** | 1,500 | 1,800 | 1,100 | | **Annual Benefit** | 9,500 | 11,000 | 9,000 | | **Salvage Value** | 3,500 | 6,000 | 4,000 | **Explanation of Table Columns** - **First Cost:** The initial amount to be paid for purchasing the equipment. - **O&M Costs:** The annual operation and maintenance costs required to keep the equipment running. - **Annual Benefit:** The yearly financial advantage gained from using the equipment. - **Salvage Value:** The estimated resale value of the equipment at the end of its useful life. **Analysis Approach** - Conduct an NPW analysis for each equipment option. - Determine which option provides the highest NPW, indicating the most financially beneficial choice over the equipment's useful life. Through this analysis, Austin General Hospital aims to identify the optimal investment decision for procuring new lab equipment.
Transcribed Image Text:### Evaluation of Lab Equipment Options at Austin General Hospital **Introduction** Austin General Hospital is considering the purchase of new laboratory equipment. The decision involves evaluating three different companies offering equipment with varying costs and benefits. The financial analysis will be conducted using Net Present Worth (NPW) to determine the most cost-effective option. **Parameters for Evaluation** - **Interest Rate:** 12% - **Useful Life of Equipment:** 5 years **Table: Financial Details** | **Company** | **A** | **B** | **C** | |-------------|-----------|-----------|-----------| | **First Cost** | $13,500 | $20,000 | $15,000 | | **O&M Costs** | 1,500 | 1,800 | 1,100 | | **Annual Benefit** | 9,500 | 11,000 | 9,000 | | **Salvage Value** | 3,500 | 6,000 | 4,000 | **Explanation of Table Columns** - **First Cost:** The initial amount to be paid for purchasing the equipment. - **O&M Costs:** The annual operation and maintenance costs required to keep the equipment running. - **Annual Benefit:** The yearly financial advantage gained from using the equipment. - **Salvage Value:** The estimated resale value of the equipment at the end of its useful life. **Analysis Approach** - Conduct an NPW analysis for each equipment option. - Determine which option provides the highest NPW, indicating the most financially beneficial choice over the equipment's useful life. Through this analysis, Austin General Hospital aims to identify the optimal investment decision for procuring new lab equipment.
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