You are hoping to establish a new simulation center at your hospital. Your first initiative will be offering central line placement simulations. You work with a reimbursement specialist in the finance department and estimate that, due to reductions in infection rates resulting from your simulation program, the hospital will save $2,500 per year. (These savings will come primarily through reductions in length of stay.)
You plan to purchase 3 CVC placement mannequins for $2,000 each. The only additional cost you will have to account for is a once-annual purchase of replacement tissue for the simulation mannequins. The replacement tissue will be a $700 annual cost. You will not need to make and additional tissue purchase at the time you purchase the mannequin.
Assume the discount rate your organization uses for projects of this nature is 10%. Begin with “year 0”, which is the time at which you purchase the mannequins. Assume that at “year 0” your only financial effect is the mannequin purchase. Savings and additional tissue purchases start a year later (label this “year 1”). Make you projections for years 1-5.
Do you agree with your director’s calculation of the project’s return? Does it agree with your IRR calculation? If not, what is the director forgetting about?
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