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A HCO's investment of $2,000 in a piece of equipment will reduce labor costs by $550 per year for the next 5 years. Twenty-five percent (25%) of all patients seen by the firm have a third-party payer arrangement that pays for capital costs on a retrospective basis. Twenty-five percent (25%) of all patients also reimburse for actual operating costs. What is the annual cash flow of the investment? Assume a 5-year life and straight-line depreciation. (Finance)

Sagot :

Anthougoidn

The annual cash flow of HCO's investment of $2,000 in equipment is $600.

Data and Calculations:

Investment in equipment = $2,000

Annual reduction in labor costs = $550

Project duration = 5 years

Annual cash flow of the investment = $600 ($2,000 x 25% + $2,000 x 1/5 x 25%)

Thus, the annual cash flow of the investment is $600.

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