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?