Reference no: EM132516714

Crown Royal Hospital is thinking of upgrading their MRI machine rather than do the scheduled major overhaul. New ceramic magnets use far less energy and require less annual maintenance. Since the specialized, shielded room has already been built, Crown Royal only has to look at the cost of the machine and not of any renovations. A new MRI will cost $3,190,000. Annual savings in electricity and maintenance are estimated at $290,000 per year. The new machine is expected to have a twelve-year life before a major overhaul is required.

Question 1: Calculate the payback period in years (to the nearest two decimal places). Show all work. Advise the hospital if this is a good idea.

Payback period = Amount invested / Expected annual net cash flow Calculate the annual Accounting Rate of Return (to the nearest two decimal places). Show all work. Accounting rate of return = Average annual savings (or revenue increase) / Total Amount invested