In deciding whether to purchase or lease a new dictation system, the HIM supervisor calculates the payback period. The hospital's required payback period is three years. If the equipment costs $ 28,000 and generates $3,500 per year in savings, what would be the payback period for this equipment? Should the department purchase this equipment?
You've already stated that the required payback period is 3 years.
3,500x > 28,000
Solve for x to find how long the company would need to keep this equipment.
To calculate the payback period for the dictation system, we need to determine how long it will take for the savings generated by the equipment to equal the initial cost of $28,000.
To do this, we divide the initial cost by the annual savings generated:
Payback Period = Initial Cost / Annual Savings
In this case, the initial cost is $28,000 and the annual savings is $3,500.
Payback Period = $28,000 / $3,500 = 8 years
Thus, the payback period for this equipment is 8 years, which is greater than the hospital's required payback period of 3 years.
Based on the payback period calculation, it might not be advisable for the department to purchase this equipment, as it would take longer than the desired payback period to recoup the initial cost through the savings generated.