Reference no: EM131048807
Assignment - Capital Budgeting
There are many options to buy capital, including cash purchases, loans, leasing, and other forms of payment. Your goal as a healthcare manager is to determine which method is best for your organization, given its financial and organizational structure (i.e., for-profit or not-for-profit). Time value of money and net present value are two techniques that may help you determine how and when to invest in new capital. For this Assignment, you examine these concepts as they pertain to the healthcare industry.
To prepare for this Assignment:
Review this week's Learning Resources. Reflect on concepts of time value of money, net present value, internal rate of return, and purchasing options.
The Assignment:
Use the "Week 10 Assignment Capital Budget Excel Template" to show your work, answer the following questions:
1. If a physician deposits $24,000 today into a mutual fund that is expected to grow at an annual rate of 8%, what will be the value of this investment:
a. 2 years from now
b. 4 years from now
c. 6 years from now
d. 8 years from now
2. The Chief Financial Officer of a hospital needs to determine the present value of $120,000 investment received at the end of year 5. What is the present value if the discount rate is:
a. 2%
b. 4%
c. 6%
d. 8%
3. Calexico Hospital plans to invest $1.6 million in a new MRI machine. The MRI will be depreciated its 5-year economic life to a $200,000 salvage value. Additional revenues attributed to the new MRI will be in the amount of $1.5 million per year for 5 years. Additional operating expenses, excluding depreciation expense, will amount to $1 million per year for 5 years. Over the life of the machine, net working capital will increase by $30,000 over the life of the project.
a. Assuming that the hospital is a non-profit entity, what is the project's net present value (NPV) at a discount rate of 8%, and what is the project's IRR?
b. Assuming that the hospital is a for-profit entity and the tax rate is 30%, what is the project's NPV at a cost of capital of 8%, and what is the project's IRR?
4. Marshall Healthcare System, a not-for-profit hospital, is planning on opening an imaging center including MRI, x-ray, ultrasound, and CT. The new center will generate $3 million per year in revenues for 5 years. Expected operating expenses, excluding depreciation, would increase expenses by $1.2 million per year over the life of the project. The initial capital investment outlay for the project is $5 million, which will be depreciated on a straight line basis to a savage value. The salvage value in year 5 is $800,000. The cost of capital for this project is 12%.
a. Compute the NPV in the IRR to determine the financial feasibility of the project.
5. Penn Medical Center, a for-profit hospital, is considering the purchase of a new 64-slice CT scanner. The cost of the new scanner is $5 million and will be depreciated over 10 years on a straight line basis to $0 savage value. The tax rate is 40%. The financing options include either borrowing the full cost of the scanner or leasing a scanner. The lease option is a 5-year lease with equal before-tax lease payments of $950,000 per year. The borrowing alternative is a 5-year loan covering the entire cost of the scanner at an interest rate of 5%. The after-tax cost of debt is 3%. Should Penn Medical lease the equipment or borrow the money?
Attachment:- week 10 Capital Budget Excel.rar
|
What are the attitudes toward responsibility exhibited
: What are the attitudes toward responsibility exhibited by various characters in the story? If you were David, what are ethically and morally conflicting situations do you face in this case?
|
|
Effectiveness of the current network business model
: Evaluate the effectiveness of the current network business model prior to the addition of the new on-line retail division and explain your view of the impact on likely inventory models.
|
|
How does this complicate the job of dns
: How does this complicate the job of DNS? How does this affect the problem of finding your local DNS server?
|
|
Report on things happening outside the u.s.
: For this assignment you will research and report on things happening outside the U.S. relative to many of the issues we have covered in this class. Compare and contrast U.S. and global companies doing business around the world and their behaviors ..
|
|
What is the project net present value
: Assuming that the hospital is a non-profit entity, what is the project's net present value (NPV) at a discount rate of 8%, and what is the project's IRR
|
|
Program that manipulates a database of product records
: program should allow the user to add a record, find a record that matches a product name, and change the price and quantity of a product by a given amount.
|
|
Zero-coupon bond-what was your total return for past year
: You purchased a zero-coupon bond one year ago for $281.83. The market interest rate is now 9 percent. Required: If the bond had 15 years to maturity when you originally purchased it, what was your total return for the past year?
|
|
Write a response paper on bruised hibiscus
: Your paper should be 1-2 pages in length, typed, double spaced, 12 point font. Your paper is due in class on Monday, May 9. Please write a response paper on Bruised Hibiscus.
|
|
Planned increase in net working capital
: Eagle Products’ EBIT is $400, its tax rate is 30%, depreciation is $16, capital expenditures are $56, and the planned increase in net working capital is $25. What is the free cash flow to the firm?
|