Questions 3-5 are draining my efforts, please help. I need any guidance
Questions 3-5 are draining my efforts, please help. I need any guidance
Healthcare Financial Management and EconomicsWeek 10 Assignment — Capital BudgetingThere are many options to buy capital, including cash purchases, loans, leasing, andother forms of payment. Your goal as a healthcare manager is to determine whichmethod 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 twotechniques that may help you determine how and when to invest in new capital. For thisAssignment, 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:1If a physician deposits $24,000 today into a mutual fund that is expected to growat an annual rate of 8%, what will be the value of this investment:a2 years from nowb4 years from nowc6 years from nowd8 years from now2The 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 ifthe discount rate is:a2%b4%c6%d8%3Calexico Hospital plans to invest $1.6 million in a new MRI machine. The MRI willbe depreciated its 5-year economic life to a $200,000 salvage value. Additionalrevenues attributed to the new MRI will be in the amount of $1.5 million per yearfor 5 years. Additional operating expenses, excluding depreciation expense, willamount to $1 million per year for 5 years. Over the life of the machine, networking capital will increase by $30,000 over the life of the project.© 2015 Laureate Education, Inc.Page 1 of 2
aAssuming that the hospital is a non-profit entity, what is the project’s netpresent value (NPV) at a discount rate of 8%, and what is the project’sIRR?bAssuming 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 theproject’s IRR?4Marshall Healthcare System, a not-for-profit hospital, is planning on opening animaging center including MRI, x-ray, ultrasound, and CT. The new center willgenerate $3 million per year in revenues for 5 years. Expected operatingexpenses, excluding depreciation, would increase expenses by $1.2 million peryear over the life of the project. The initial capital investment outlay for the projectis $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 is12%.aCompute the NPV in the IRR to determine the financial feasibility of theproject.5Penn Medical Center, a for-profit hospital, is considering the purchase of a new64-slice CT scanner. The cost of the new scanner is $5 million and will bedepreciated over 10 years on a straight line basis to $0 savage value. The taxrate is 40%. The financing options include either borrowing the full cost of thescanner or leasing a scanner. The lease option is a 5-year lease with equalbefore-tax lease payments of $950,000 per year. The borrowing alternative is a5-year loan covering the entire cost of the scanner at an interest rate of 5%. Theafter-tax cost of debt is 3%. Should Penn Medical lease the equipment or borrowthe money?© 2015 Laureate Education, Inc.Page 2 of 2
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