Humana Hospital Corporation installed a new MRI machine at a cost of $810,000 th

Question

Humana Hospital Corporation installed a new MRI machine at a cost of $810,000 this year in its medical professional clinic in Cedar Park. This state-of-the-art system is expected to be used for 3 years and then sold for $120,000. Humana uses a return requirement of 28% per year for all of its medical diagnostic equipment. As a bioengineering student currently serving a Co-op semester on the management staff of Humana Corporation in Louisville, Kentucky, you are asked to determine the minimum revenue required each year to realize the expected recovery and return.

What is your answer?

The minimum revenue required each year to realize the expected recovery and return is

Explanation / Answer

minimum revenue required each year = R

i = 28% , n = 3 years

Equating PV of revenue each year with the capitalized costs:

R/1.28 + R/1.282 + R/1.283 = 810000 -120000/1.283

R = $ 402892.3

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