Add or drop with net present value analysis franklin county

Reference no: EM13484353

Add or drop with net present value analysis. Franklin county Hospital, a nonprofit hospital, bought and insatlled a new computer system last year for $65,000. The system is designed to relay information between labs and medical units. Charlene Walker, the hospital's new computer specialist, had a meeting with Lou Campbell, vice president of finance. She began: "Lou, today I read in journal that a new computer system has just been introduced. It costs $42,000, but I believed that by replacing our old system, we could reduce operating and maintenance costs that are now being incurred." The follolwing are Walker's estimates:

Purchase and installment price - Present System - $65,000

New System - $42,000

Useful life when purchased - Present System - 6 years

New System - 5 years

Computer Operating Costs - Present System - $30,000

New System - $20,000

Computer operating and - Present System - $20,000

maintenance costs per year- New System - $18,000

Depreciation expenses per year -Present System - $10,833

New System- $8,400

Costs of Capital - Present System - 10%

New System - 10%

a. Based on an analysis, what advice do you recommend that Walker give Campbell?

b. At what price for the new computer system would Campbell be indifferent?

c. Is this a typical make-or-buy decision? why?

Reference no: EM13484353

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