Generic Hospital has decided to invest in an Intuitive Robot called the DaVinci. It is a robotic surgery device that is less invasive than standard surgeries and consequently allows shorter healing times and shorter length of stay in a hospital. The following are the terms of a lease for the DaVinci Robot: Fair Market Value 1,922,633 Down Payment 250,000 Lease Term (years) 5 Interest Rate 4% A) What are the yearly payments associated with the lease of the robot? As part of the financial planning process, we have determined that the robot will last 5 years and we will be able to sell it to a foreign country hospital for $200,000. During the time period, it has been determined that the various costs of supplies necessary to operate the machine will be 15% of the lease payments during the 1st two years and 20% for the final 3 years of the lease. During this lease period, working capital needed will be $250,000. B) Assuming that we are able to achieve sales of $1,000,000 per year and keep other overhead costs at the amount of $300,000 per year what is the net present value of the machine assuming a discount rate of 9%? Is the investment worth it (financially speaking)? C) How much interest did we pay over the life of the lease?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Generic Hospital has decided to invest in an Intuitive Robot called the DaVinci. It is a robotic surgery device that is less invasive than standard surgeries and consequently allows shorter healing times and shorter length of stay in a hospital.

The following are the terms of a lease for the DaVinci Robot:

Fair Market Value 1,922,633

Down Payment 250,000

Lease Term (years) 5

Interest Rate 4%

A) What are the yearly payments associated with the lease of the robot?

As part of the financial planning process, we have determined that the robot will last 5 years and we will be able to sell it to a foreign country hospital for $200,000. During the time period, it has been determined that the various costs of supplies necessary to operate the machine will be 15% of the lease payments during the 1st two years and 20% for the final 3 years of the lease. During this lease period, working capital needed will be $250,000.

B) Assuming that we are able to achieve sales of $1,000,000 per year and keep other overhead costs at the amount of $300,000 per year what is the net present value of the machine assuming a discount rate of 9%? Is the investment worth it (financially speaking)?

C) How much interest did we pay over the life of the lease?

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