Faith Hospital, a taxpaying entity, wants to replace its current labor-intensive telemedicine system with a new automated version that would cost $3,000,000 to purchase. This new system has a five-year life and would be depreciated over a straight-line basis to a salvage value of $250,000. The current telemedicine system was purchased five years ago for $1,500,000, has five years remaining on its useful life, and would be depreciated similarly to a salvage value of $200,000. This current system could be sold in the marketplace now for $300,000. The new telemedicine system has annual labor operating costs of $175,000, whereas the current system has annual labor operating costs of $900,000. Neither system will change patient revenues. The hospital has a 40 percent tax rate and required rate of return of 6 percent. The financial analysis will be projected over a five-year period. Use the NPV approach to determine if the new telemedicine system should be selected. (Hint: see Appendix F.)
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