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QUESTION 5[20 MARKS] A hospital is considering to purchase a diagnostic machine costing...

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Accounting

QUESTION 5[20 MARKS]
A hospital is considering to purchase a diagnostic machine costing P800000. The
projected life of the machine is 8 years and has an expected salvage value of P60000
at the end of 8 years. The annual operating cost of the machine is 75000. It is
expected to generate revenues of P400000 per year for eight years. Presently, the
hospital is outsourcing the diagnostic work and earning commission income of
P120000 per annum; net of taxes.
REQUIRED
a. Advise the hospital management whether it would be profitable to purchase the
machine, basing your recommendation under:
i. Net Present Value Method
ii. Profitability Index Method
b. What are the relative merits and demerits of the following investment appraisal
techniques and what conclusions would you therefore draw about their relative
attractiveness?
i. Payback period; and
ii. Accounting Rate of Return.
Present Factors at 10% are given below:
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