Question

. A hospital is considering buying a piece of equipment that costs $5,000. They believe the appropriate opportunity cost of capital/discount rate is 4.50%. Here is the stream of cash flow related to the equipment:

Year 0	$       (5,000)
Year 1	$ 750
Year 2	$         1,050
Year 3	$         1,100
Year 4	$         1,200
Year 5	$         1,300

What is the return on investment (dollar return) for this equipment? What is the rate of return (internal rate of return) on the investment? Is this a good investment for the hospital? Why or why not?

Answer 1