View the step-by-step solution to:

UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT 5/1/10 Chapter 11 -- The Basics of Capital Budgeting PROBLEM 1 Winston Clinic is evaluating a project

I just need the last question, question 16 answered on the spreadsheet
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT 5/1/10 Chapter 11 -- The Basics of Capital Budgeting PROBLEM 1 Winston Clinic is evaluating a project that costs $52,125 and has expected net cash flows of $12,000 per year for eight years. The first inflow occurs one year after the cost outflow, and the project has a cost of capital of 12 percent. a. What is the project's payback? b. What is the project's NPV? Its IRR? c. Is the project financially acceptable? Explain your answer. ANSWER Year Cash flow Cumulative cash flows 0 -52125 -52125 1 12000 -40125 2 12000 -28125 3 12000 -16125 4 12000 -4125 5 12000 7875 6 12000 19875 7 12000 31875 8 12000 43875 Payback = 4.34375 years NPV = 7486.68 IRR = 16.00% Yes, the project should be accepted
Background image of page 1
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 11 -- The Basics of Capital Budgeting PROBLEM 2 Better Health, Inc. is evaluating two investment projects, each of which requires an up-front expenditure of $1.5 million. The projects are expected to produce the following net cash inflows: Year Project A Project B 0 -$1,500,000 -$1,500,000 1 $500,000 $2,000,000 2 $1,000,000 $1,000,000 3 $2,000,000 $600,000 a. What is each project's IRR? b. What is each project's NPV if the cost of capital is 10 percent? 5 percent? 15 percent? ANSWER IRR = 43.97% 82.03% NPV @ 10% 1283621.34 1595416.98 NPV @ 5% 1610895.15 1830093.94 NPV @ 15% 1005958.74 1389783.84 Project B should be accepted as it has higher NPV
Background image of page 2
Show entire document
Sign up to view the entire interaction

Top Answer

Hi please find the... View the full answer

8437232.xls

UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT 5/1/10 Chapter 11 -- The Basics of Capital Budgeting
PROBLEM 1
Winston Clinic is evaluating a project that costs $52,125 and has expected net cash...

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online