A hospital would replace five personnel that currently cover three shifts per da

Question

A hospital would replace five personnel that currently cover three shifts per day. 365 days per year. Each person earns $35,000 per year. Company-paid benefits and overhead are 45% of wages. Money costs 8% after income taxes. Combined federal and state income taxes are 40%. Annual property taxes and maintenance are 2.5 and 4% of investment, respectively. Depreciation is 15-year straight line. Disregarding inflation, how large an investment in the automation project can be economically justified?

Explanation / Answer

Salary of 5 persons=5*35000 175000 Company-paid benefits and overhead@45%=.45*175000 78750 Total Current Expenses 253750 Income Tax 40% Annual property tax 2.5% maintenance 4% Income=X+(0.025+0.04)*X-X/15 Income-Tax=X+(0.025+0.04)*X-X/15-(0.4*(X+(0.25+0.04)*X-X/15)) or X-0.4X=253750 or 0.6X=253750 or X=253750/0.6 422916.7 The investment of 422916 can be made

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