Healthcare Finance

This is a statement regarding a recommendation on whether or not a new magnetic resonance imaging (MRI) machine is a reasonable investment for a healthcare facility. Within this report I will provide a detailed explanation highlighting some of the keys benefits and a cash flow analysis for the MRI machine.

This report is addressed to the physician’s network that has asked me to prepare a detailed cash flow analysis for a MRI machine before the healthcare facility makes an investment decision to buy it. In this regards I have drafted a comprehensive report recommending whether or not the new MRI machine is a possible investment.

Since the nature of this project assignment has not provided the cost of capital, it only means that we will not take into account the concept of time value of money. So, to analyze the cash flows of the project, we will use tools such as Payback Period and Accounting Rate of Return. Payback period is that period in capital budgeting that would be required to recoup the funds invested in a project (Gapenski, 2013). For this MRI investment projects, I calculated payback period as follows:

· Payback period = Cost of investment/ Net operating income per year

· Cost of investment in the MRI machine = $ 2.5M

· Net operating income per year = $ 693,500

· Payback Period = $ 2,500,000/ $ 693,500 per year = 3.6 years

This means that by the third year the facility will have recouped its cost of purchasing the MRI machine; thus, it could have broken even. After recovering its total initial cost of buying the machine, it follows that the facility will start making profits from the fourth year through the fifth year when they will have to sell off the machine according to their projection. However, we can also arrive at the estimated payback period of 3.5 years if we take into account the net cash flows of the project. The scenario is represented in the table below: