Question

You have acquired a new CT scanner at a cost of $750,000. You expect to perform 7,000 procedures per year over the estimated 5-year life of the scanner. Assuming no salvage value and an annual increase in replacement cost of 10 percent, what capital charge per procedure should the hospital levy to provide for replacement cost in the second year

Answer 1

The capital charge per procedure that the hospital should levy to provide for replacement cost in the second year is:

= $64.82 per procedure.

Step-by-step explanation:

a) Data and Calculations:

Cost of CT Scanner = $750,000

Annual increase in replacement cost = 10%

Estimated useful life of the scanner = 5 years

Number of procedures per year over the estimated 5-year life = 7,000

Total number of procedures = 35,000 (7,000 * 5)

Replacement cost in 2 years = $750,000 * FV factor

= $750,000 * 1.21

= $907,500

Amount to charge per procedure = $907,500/14,000

= $64.82