Reference no: EM13119174

You are the manager of the surgery department at a hospital which serves mostly Medicare patients. The hospital performs 1,000 surgical operations per year using the traditional method. The Medicare payment for a surgical operation using the traditional method is 2,250 dollars and the cost to the hospital per operation it 1,750 dollars.

You have the option to purchase a Robotic Surgery Machine to perform the surgical operations. The medicare payment for a surgical operation using a Robotic Surgery Machine is 2,500 dollars. In addition, a surgical operation using a Robotic Surgery Machine has a lower cost per operation of 1,500 dollars.

a) Compute the profit at the end of each year if the hospital continues to use the traditional method for surgical operations.

b) Compute the profit at the end of each year if the hospital uses a Robotic Surgery Machine for surgical operations.

c)For simplicity, assume that the life of the machine is 3 years. In addition, assume the opportunity cost of funds (interest rate) is 10% per year.

i) If the cost of a Robotic Surgery Machine is 1,000,000 dollars, should the hospital buy the machine?

ii) If the cost of a Robotic Surgery Machine is 1,250,000 dollars, should the hospital buy the machine?