QUESTION MARKS
A hospital is considering to purchase a diagnostic machine costing P The
projected life of the machine is years and has an expected salvage value of P
at the end of years. The annual operating cost of the machine is It is
expected to generate revenues of P per year for eight years. Presently, the
hospital is outsourcing the diagnostic work and earning commission income of
P per annum; net of taxes.
REQUIRED
a Advise the hospital management whether it would be profitable to purchase the
machine, basing your recommendation under:
i Net Present Value Method
ii Profitability Index Method
b What are the relative merits and demerits of the following investment appraisal
techniques and what conclusions would you therefore draw about their relative
attractiveness?
i Payback period; and
ii Accounting Rate of Return.
Present Factors at are given below:
