A hospital is considering to purchase one of two different medical devices to pe

Question

A hospital is considering to purchase one of two different medical devices to perform a specific task. Both devices will perform an accurate analysis. Device A costs $170,000 initially, whereas device B (the deluxe model) costs $180,000. It has been estimated that the cost of maintenance will be $7,800 for device A and $4,500 for device B in the first year. Management expects these costs to increase 15% per year. The hospital uses a six-year study period, and its effective income tax rate is 50%. Both devices qualify as five-year MACRS (GDS) property. Which device should the hospital choose if the after-tax, market-based MARR is 8% per year (

Explanation / Answer

for A

170,000+7800(1+0.5)^6

for B

180000+4500(1+0.5)^6

A>B

hospital should choose device B as it will be beneficial in 6 year duration

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.