Basic net present value analysis

Assignment Help Financial Management
Reference no: EM131911920

Basic Net Present Value Analysis, Competing Projects Kildare Medical Center, a for-profit hospital, has three investment opportunities: (1) adding a wing for in-patient treatment of substance abuse, (2) adding a pathology laboratory, and (3) expanding the outpatient surgery wing. The initial investments and the net present value for the three alternatives are as follows:

                        Substance Abuse                        Laboratory                               Outpatient Surgery

Investment         $1,500,000                                 $500,000                                    $1,000,000

NPV                    150,000                                     140,000                                        135,000

Although the hospital would like to invest in all three alternatives, only $1.5 million is available.

Required:

1. Rank the projects on the basis of NPV, and allocate the funds in order of this ranking. If a blank requires an entry of zero, enter "0". Enter your answers in whole dollars and not in millions of dollars.

Ranking Project Allocation

                               Substance abuse wing              $

                                Laboratory                                 $

                                Outpatient surgery wing            $

What project or projects were selected?

Substance abuse wing only

Laboratory only

Substance abuse wing and laboratory

Laboratory and outpatient surgery wing

Outpatient surgery wing only

What is the total NPV realized by the medical center using this approach? $

2. CONCEPTUAL CONNECTION: Assume that the size of the lot on which the hospital is located makes the substance abuse wing and the outpatient surgery wing mutually exclusive. With unlimited capital, which of those two projects would be chosen?

The laboratory and the outpatient surgery wing

The substance abuse wing and the laboratory

The substance abuse wing and the outpatient surgery wing

With limited capital and the three projects being considered, which projects would be chosen?

The laboratory and the outpatient surgery wing

The substance abuse wing and the outpatient surgery wing

The substance abuse wing and the laboratory

3. CONCEPTUAL CONNECTION: Form a group with two to four other students, and discuss qualitative considerations that should be considered in capital budgeting evaluations. Identify three such considerations.

Quicker response to market changes and flexibility in production capacity.

Strategic fit and long-term competitive improvement from the project.

Risks inherent in the project, business, or country for the investment.

All of the above.

None of these.

Reference no: EM131911920

Questions Cloud

Discuss ethics- related principles precedents and concepts : Discuss the ethics- related principles, precedents, and concepts relevant to this case. How is this related to how the birth control pill works?
State and the federal government : Are these qualifications required by each state and the federal government?
What is growth rate of dividends and earnings : What is the growth rate of earnings? What is the growth rate of dividends?
Create a new type of credit card : Design a new textbook for a psychology class, science class, etc.Invent a new way to protect computers from viruses.
Basic net present value analysis : Basic Net Present Value Analysis, Competing Projects Kildare Medical Center, a for-profit hospital, has three investment opportunities:
What is the current value of free cash flow : 1. What is the current value of free cash flow? 2. Using a 20 EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization)
What conflict resolution advice would you give to the person : Imagine that you have been in a management position for a few years and received a promotion to become an upper-level manager.
Describe the literal audience and the rhetorical audience : Select a controversial current topic and describe the literal audience and the rhetorical audience for speeches addressing each audience.
What is the sharpe ratio and cal line : What is the Sharpe Ratio and CAL line. What is the Sharpe Ratio and CAL line.

Reviews

Write a Review

Financial Management Questions & Answers

  Calculate the addition to retained earnings expected

Calculate the addition to retained earnings expected in 2016.

  How much gain or loss resulted from the sale

A person owned 300 shares of MNO common stock, which cost $23,400.- How much gain (or loss) resulted from the sale?

  New firm in rapidly growing industry

The Bell Weather Co. is a new firm in a rapidly growing industry. What is the current value of one share of this stock if the required rate of return is 8.20 %

  What is the difference in the commission payable

WHAT IS THE DIFFERENCE IN THE COMMISSION PAYABLE TO Saleperso CHAN compared to the commission payable to Salesperson Garcia.

  What is the equipments after-tax salvage value

Kennedy Air Services is now in the final year of a project. The equipment originally cost $24 million, of which 75% has been depreciated. Kennedy can sell the used equipment today for $6 million, and its tax rate is 35%. What is the equipment's after..

  Oftentimes split the interest and principal payments

Investment banks will oftentimes "split" the interest and principal payments on US government bonds into two parts and sell each part separately. Consider a vanilla government bond with 30 years to maturity, a coupon rate of 10 percent, a face value ..

  The immediate short-run effect on funds requirements

Suppose a firm makes the following policy changes. Think in terms of the immediate short-run effect on funds requirements.

  Several terms unique to auto leases

Auto mobiles are often leased, and there are several terms unique to auto leases. Suppose you are considering a car. The price you and the dealer agree on for the car is $36,000. This is the base capitalized cost. What APR is the dealer quoting you? ..

  What are the potential benefits for this firm

Starter Corp. of New Haven, Connecticut, produces sportswear that is licensed by professional sports teams. It recently decided to expand in Europe. What are the potential benefits for this firm from using DFI?

  Compute incremental cash flows of investment for each year

The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 31 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are ..

  Time value of money and the lottery

Time value of money and the lottery. A friend of yours by the name of Sam has asked you for financial advice.

  Effective annual interest rate

Home loans typically involve “points,” which are fees charged by the lender. Each point charged means that the borrower must pay 1% of the loan amount as a fee. What is the effective annual interest rate charged on such a loan, assuming loan repaymen..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd