Capital Justification

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Capital Purchase Justification
Introduction
According to the hospital’s five-year plan, an investment in capital equipment should boost the quality of services offered at the hospital. Many options of capital investments that hospital could invest in exist. However, this report recommends an investment in the MRI (Magnetic Resonance Imaging) equipment. This equipment involves a large capital investment upfront, but it can be profitable in the end. The hospital has considered factors such as the cost of this equipment, the facilities needed, and the return on investment of the equipment. The above factors are among some of the factors that are considered when buying large capital equipment for an organization such as a hospital (Keefer, 2011). Cost of installing and operating the MRI equipment

The recommended equipment is a GE Signa Echospeed Plus 1.5T MRI, which is a machine of medium capacity. This machine produces exceptionally high quality scans, which are extremely detailed; this will attract more customers to the hospital. This equipment will be acquired at an initial cost of about $1.9 million; there is also an additional cost of $400,000, which covers the redesign, and construction of an MRI room. Therefore, there is a total initial cost of about $2.3 million. Other costs, which have been factored into this report, are the operating and maintenance costs of the equipment (Tofts, 2005). GE offers a three months free maintenance, but the hospital will have to pay for maintenance after that. There is also the cost of hiring an MRI radiologist whose salary ranges between $55,000 and $65,000 a year. Therefore, the total cost of operating the machine, in a year is about $400,000.

The return on investment of the MRI equipment
In light of the significant amount that the hospital will spend upfront, it is imperative that the MRI covers the initial cost and gives the hospital a profitable turnover. Given that the rates for doing an MRI scan range from...
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