Capital Expenditure Lecture Example 2 – HHC Hospital HHC wants to improve the productivity of its Imaging Department. It is considering replacing its old X-ray machine (Old-E) with a new machine (New-E). New-E is faster and easier to operate, and has the ability to X-ray larger areas of the body. These improvements will decrease labour costs and reduce the average number of X-rays taken per patient. New-E X-rays are also of higher quality and will lead to improved diagnoses, better patient treatment, and increased safety of technicians and patients. Additional information and assumptions: 1. Old-E is currently valued at $40,000, and its current disposal value is $6,500. If it were kept, Old-E could operate for another 5 years, after which it would have a $0 disposal value. 2. New-E is expected to have a 5 year useful life and a $0 disposal value (for both tax and accounting purposes). It will cost $350,000 to purchase, and $40,000 to install. The installation costs are considered part of the cost of New-E. 3. It is expected that New-E will result in annual operating cash savings of $120,000 in years 1-4, and
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This note was uploaded on 07/13/2011 for the course ACCT 2522 at University of New South Wales.