Question

On January 2, 2019, Twilight Hospital purchased a $92,000 special radiology scanner from Bella Inc. The...

On January 2, 2019, Twilight Hospital purchased a $92,000 special radiology scanner from Bella Inc. The scanner had a useful life of 4 years and was estimated to have no disposal value at the end of its useful life—the straight-line method of depreciation used on this scanner. Annual operating costs with this scanner are $105,000. Approximately one year later, the hospital is approached by Dyno Technology salesperson, Jacob Cullen, who indicated that purchasing the scanner in 2019 from Bella Inc. was a mistake. He points out that Dyno has a scanner that will save Twilight Hospital $26,000 a year in operating expenses over its 3-year useful life. Jacob notes that the new scanner will cost $110,000 and has the same capabilities as the scanner purchased last year. The hospital agrees that both scanners are of equal quality. The new scanner will have no disposal value. Jacob decides to buy the old scanner from Twilight Hospital for $37,000.

Homework Answers

Answer #1

Ans:

To decide whether to but the new scanner or not:

New cost of scanner = $110,000

Replacement of old scanner will save = $37,000

Saving in operating costs from new scanner = $26,000 each year

Saving in Operating costs for 3 years = $26,000*3 = $78,000.

Net benifit of Buying new scanner = $78,000 + $37,000 - $110,000 = $5,000

So Twilight hospital should buy the new Scanner from Jacob.

Please note that all other information provided is not relevant for decision making, so to be ignored.

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