Overview of Investment Return Proposals
Based on the current capital investment plan of $5 million, the hospital should consider a project that yields a return as soon as possible. Considering the two proposals, acquiring new MRI equipment would cost the hospital $1.3 million, including additional rent for space and labor costs. When installed in the hospital, this new MRI equipment would generate an NPV of $2,007,806 after five years of usage with a payback of 1.23 years and an IRR of 10.95%.
However, if the hospital decides to purchase the Da Vinci robot, it would cost the organization $2.7 million for its acquisition, with associated costs such as hiring a qualified surgeon to operate the robot and training staff on its usage. The robot would generate an NPV of $12 million with a payback of 2.58 years and an IRR of 83.60%. Therefore, the hospital should consider acquiring MRI equipment, as its payback period would be lower than that of the Da Vinci robot.
Market and Strategy
The hospital’s current capital allocation aims to enhance services and increase revenue. The primary priorities of this hospital are to deliver high-quality medical care and expedite treatment for various illnesses. Acquiring the MRI equipment for the company involves conducting thorough research on the best supplier who offers the equipment at a relatively affordable price, along with comprehensive after-sales services. Therefore, the machine would be purchased from a supplier market that has been in operation for a long time, and the equipment has received positive feedback from its users.
In addition, the MRI equipment is an urgent machine required in hospital operations due to the current challenges of previous machines in terms of their performance. Therefore, there is a need to consider acquiring this machine urgently (Cheryl et al., 2019, p. 43). Once the equipment is installed in the hospital, there will be an increase in client flows, as the new machine will be faster, more effective, and more reliable.
Operational Impact
The medical department would benefit from using this machine, as it would enable them to diagnose various conditions quickly and advise patients on the most suitable medications. Additionally, the finance department would generate revenue from the use of this machine. The marketing department would also benefit from having this equipment in the hospital, as it would provide an improved tool for assessing the illnesses of many patients, thereby enhancing the corporate image (Cheryl et al., 2019, p. 54). The MRI equipment would also improve the physicians and their clients.
Patient Experience
The new MRI would be practical since it provides a high resolution with clear images that physicians and consultants can easily interpret. In addition, patients would benefit from this machine, as it would lead to improved clinical outcomes based on the medics’ interpretation. Investing in this equipment would improve access to medical services for clients, as they would be easily diagnosed and their illnesses detected through imaging machines.
Financial Factors
The net present value of owning the equipment would be $2.00 million at the end of five years of operations, which is projected to increase further with its continued use. Additionally, the depreciation value of this equipment is relatively low, and it has the shortest payback period of 1.23 years to achieve its returns on investment. The internal rate of return from acquiring an MRI in the hospital is 10.95%, indicating that it is likely practical and attainable to purchase the machine and achieve profitability within the next few years.
Final Decision
Based on the key advantages highlighted above and the implementation of the acquisition proposal for new MRI equipment, it is recommended that the hospital purchase the equipment for its operations. The machine, however, should be purchased at a relatively low price; therefore, management should conduct a bidding process for all vendors and select a supplier with high-quality MRI equipment at a relatively low price. Additionally, installing the machine should be relatively inexpensive to minimize costs and enhance the profitability of the machines.
Reference
Cheryl J., Christine T., & Steven A.,(2019). Financial management for nurse managers and executives (5th eds). Elsevier Education Publishers.
Appendices
Table 1: Break-Even Financial Measures
