Humana Hospital Corporation installed a new MRI machine at a cost of $750,000 this year in its medical professional clinic in Cedar Park. This state-of-the-art system is expected to be used for 5 years and then sold for $125,000. Humana uses a return requirement of 25% per year for all of its medical diagnostic equipment. As a bioengineering student currently serving a coop semester on the management staff of Humana Hospital Corporation in Louisville, Kentucky, you are asked to determine the minimum revenue required each year to realize the expected recovery and return.
(a) What is your answer?
(b) If the AOC is expected to be $80,000 per year, what is the total revenue required to provide for recovery of capital, the 25% return, and the annual expenses?
(c) Write the spreadsheet functions to display your answers.
(a) CR = -750,000(A/P,25%,5) + 125,000(A/F,25%,5)
= -750,000(0.37185) + 125,000(0.12185)
= $-263,656
The company has to have revenue of at least to $263,656 per year to recover its capital
investment and make a return of 25% per year.
(b) AW = CR + AOC = -263,656 – 80,000
= $-343,656
(c) CR function: = - PMT(25%,5,-750000,125000) displays $-263,654
AW function: = - PMT(25%,5,-750000,125000) – 80000 displays $-343,654
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