Grant Proposal

Evaluation

Grant Clinic is wanting to make an expense purchase for the Radiology Department. Recommendations are needed to address the best solution for the Grant Clinic. These recommendations will be based on calculations of payback method, net present value, and the internal rate of return. These calculations will assist Dr. Dunn and Grant Clinic’s administration in deciding the beneficial piece of equipement for the Radiology department.

Payback Method

According to Emery, Finnerty & Stowe (2007), payback provides control on liquidity, is easy to figure, offers different risk controls, and is simple to understand. Payback method controls liquidity because it discards long-term projects. This can be beneficial to a smaller, less liquid organization because it favors investments that will have a quicker cash return. The cash can then be reinvested into other projects that can return a profit. Grant Clinic will need to make a decision on which model would be the best investment for the organization.

Model A has an installation cost of $120,000 and an estimated annual labor savings of $40,000. The calculated payback method $120,000/$40,000 determines that the payback is 3 years.

Model B has an installation cost of $110,000 and an estimated annual labor saving of $32,000. The calculated payback method $110,000/$32,000 that determines the payback is 3.5 years.

Grant Clinic determines that the 3 year payback is the better choice for the clinic.

Net Present Value

Net Present Value (NPV) is used to determine if an investment is beneficial or if the desired return is not likely to be reached. Dr. Dunn and Grant Clinic is considering two machines for the radiology department.

Model A has a beginning cost of $120,000 with an annual savings on labor of $40,000.

Model B has a beginning cost of $110,000 with an annual savings on labor of $32,000.

Both pieces of equipment have an expected life span of five years. When calculating the NPV,...