1. A hospital is considering the purchase of a piece of medical equipment that costs $1,500,000 and has a useful life of five years and no salvage value at the end of its useful life. The equipment generates revenues of $650,000 per year and operating expenses of $300,000. Calculate NPV, payback, BCR, and IRR, should the equipment be purchased if the discount rate is 6% or 10%?

           Revenue   Expense

   Year 0       -      $1,500,000 (investment)

   Year 1       $650,000   $300,000

   Year 2       $650,000   $300,000

   Year 3       $650,000   $300,000

   Year 4       $650,000   $300,000

   Year 5       $650,000   $300,000

2. A hospital is considering the purchase of a piece of medical equipment that costs $1,500,000 and has a useful life of five years and a salvage value of $250,000 at the end year five. The equipment generates revenues of $450,000 per year and operating expenses of $200,000. Calculate NPV, payback, BCR, and IRR, should the equipment be purchased if the discount rate is 6% or 10%?

           Revenue   Expense

   Year 0       -      $1,500,000 (investment)

   Year 1       $450,000   $200,000

   Year 2       $450,000   $200,000

   Year 3       $450,000   $200,000

   Year 4       $450,000   $200,000

   Year 5       $450,000   $200,000