A large community hospital is considering buying a robot to perform robotic surgeries

| September 13, 2016

Question
A large community hospital is considering buying a robot to perform robotic surgeries. The cost of the technology is $20 mil, the set-up costs are $0.5 mil. The management estimates that it will cost them about $5 mil in foregone revenue to train physicians and other staff to operate the unit in the first year of operation. After that, the robot is expected to bring $3 mil per year that will grow at 7% annually. The cost of capital is 10%.
Should the hospital pursue this investment? Why or why not?

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