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?

Question

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?

Answer 1

See related questions below.

Answer 2

To calculate the payback period, we need to determine how long it will take for the cost of the equipment to be recovered through the generated savings.

1. Calculate the annual savings: The equipment generates $3,500 per year in savings.
2. Determine the initial cost of the equipment: The equipment costs $28,000.
3. Divide the cost of the equipment by the annual savings: $28,000 / $3,500 = 8 years.

The payback period for this equipment is 8 years, which is greater than the hospital's required payback period of 3 years. Based on this calculation, it would not be advisable for the department to purchase this equipment, as it would take longer than the acceptable payback period to recover the initial cost.