9. 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 to purchase and generates $3,500 per year in savings, answer the following questions.
a. What is the payback period for this equipment?
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b. Explain why the department should or should not purchase this dictation system
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a. To calculate the payback period for the equipment, we need to determine how long it will take for the cost savings from using the equipment to recover the initial investment. In this case, the cost of the equipment is $28,000 and it generates $3,500 in savings per year.
The payback period is calculated by dividing the initial investment by the annual savings:
Payback Period = Initial Investment / Annual Savings
Substituting the given values:
Payback Period = $28,000 / $3,500 = 8 years
Therefore, the payback period for this equipment is 8 years.
b. Whether or not the department should purchase this dictation system depends on various factors, including the hospital's required payback period and the long-term benefits of the system.
In this case, the hospital's required payback period is three years, and the equipment has a payback period of eight years. This means that the equipment does not meet the hospital's payback period requirement.
From a financial perspective, it may not be advisable to purchase the dictation system, as it does not recover the initial investment within the required time frame. The prolonged payback period suggests that the equipment may not generate enough savings to justify the cost of purchase.
However, other factors may also be considered. For example, if the dictation system significantly improves the efficiency and accuracy of dictation, it could enhance productivity and potentially lead to other cost savings or revenue generation opportunities in the long run.
Ultimately, the decision to purchase or lease the dictation system should be based on a comprehensive evaluation of the equipment's benefits, costs, payback period, and alignment with the organization's strategic goals.