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Cases in Healthcare Finance, 5th Edition Copyright 2014 Health Administration Press CASE 20 QUESTIONS CORAL BAY HOSPITAL Traditional Project Analysis...

I would like to get help with Case20, Coral Bay Hospital Traditional project analysis.

book is 5th addition Louis C.Gapenski

Cases in Healthcare Finance, 5 th Edition Copyright 2014 Health Administration Press 12/6/2013 CASE 20 QUESTIONS CORAL BAY HOSPITAL Traditional Project Analysis 1. What are the NPV, IRR, MIRR, and payback of the proposed ambulatory surgery center? Do the measures indicate acceptance or rejection of the proposed ambulatory surgery center? 2. Inflation is one of the most difficult factors to deal with in project analysis. a. Complete the inflation impact table shown in Exhibit 20.2. b. What management information is provided by the inflation impact table? 3. One board member wants to make sure that a complete risk analysis, including sensitivity and scenario analyses, is performed before the proposal is sent to the board. a. Perform a sensitivity analysis. b. What management information is provided by the sensitivity analysis? 4. a. Perform a scenario analysis. b. What management information is provided by the scenario analysis? c. Why is the expected NPV obtained in the scenario analysis different from the base case NPV? 5. A board member is interested in the utilization breakeven of the Center. a. What are the breakeven values of the three input variables that are highly uncertain? b. What management information is provided by the breakeven analysis? 6. To help with the risk-incorporation phase of the analysis, Jules consulted with Mark Hauser, the hospital’s CFO, about both the risk inherent in the hospital's average project and how the hospital typically adjusts for risk. a. What is the project's differential risk-adjusted NPV? b. Assess the corporate risk of the project. (No calculations are required. Think about correlation of the surgery center and hospital cash flows.) 7. Jules Bergman is aware that there are some qualitative factors that are relevant to the surgery center decision. a. What qualitative factors might support project acceptance? b. What qualitative factors might preclude project acceptance? c. Can you think of any costs that might be associated with the project that have not been included in the analysis? d. Are there any potential benefits that have not been included? e. What additional data would you seek from other hospital staff members to conduct a more thorough analysis? 8. Considering all points, would you build the ambulatory surgery center? 9. In your opinion, what are three key learning points from this case?
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CASE 20 Student Version 11/16/2015 CORAL BAY HOSPITAL Traditional Project Analysis This case illustrates a complete capital budgeting analysis, including cash flow analysis and profitability measures. Note the model extends to Column I. The model consists of a complete base case analysis—no changes need to be made to the existing MODEL-GENERATED DATA section. However, all values in the student version INPUT DATA section have been replaced with zeros. Thus, students must determine When this is done, any error cells will be corrected and the base case solution will appear. Note that the student version does not contain any risk analyses, so students will have to graphics (charts) as needed to present their results. INPUT DATA: KEY OUTPUT: Land initial cost $150,000 NPV $875,020 Land opportunity cost (and salvage value) $200,000 IRR 12.9%compare to cost of capital Building/equipment cost $10,000,000 MIRR 11.8% Build/equipment salvage value $5,000,000 Payback 4.1 Years to getting profit break even Procedures per day 20 can be tried with 25,and 15 Average net patient revenue per procedure $1,000 Labor costs $918,000 Utilities costs $50,000 Incremental overhead $36,000 Supply cost ($/procedure) $200 Inflation rate on net patient revenue 3.0% Inflation rate on costs 3.0% tray 6% for different scenario analysis Tax rate 40.0% Revenues lost from inpatient surgeries $1,000,000 Reduction in inpatient surgery costs $500,000 Cost of capital 10.0% tray 14% and 4%for different scenario analysis MODEL-GENERATED DATA: Depreciation Schedule: MACRS Deprec. End of Year Year Factor Expense Book value 1 0.20 $2,000,000 $8,000,000 2 0.32 3,200,000 4,800,000 3 0.19 1,900,000 2,900,000 4 0.12 1,200,000 1,700,000 5 0.11 1,100,000 600,000 6 0.06 600,000 0 Net Cash Flows: Project Cash Flows 0 1 2 3 4 5 Land opportunity cost ($200,000) Building/equipment cost (10,000,000) Net patient revenue (including inpatient loss) $4,000,000 $4,120,000 $4,243,600 $4,370,908 $4,502,035 Less: Labor costs 918,000 945,540 973,906 1,003,123 1,033,217 Cost savings on inpatients (500,000) (515,000) (530,450) (546,364) (562,754) Utilities costs 50,000 51,500 53,045 54,636 56,275 Supplies 1,000,000 1,030,000 1,060,900 1,092,727 1,125,509 Incremental overhead 36,000 37,080 38,192 39,338 40,518 Depreciation 2,000,000 3,200,000 1,900,000 1,200,000 1,100,000 Income before taxes $496,000 ($629,120) $748,006 $1,527,447 $1,709,270 Taxes 198,400 (251,648) 299,203 610,979 683,708 Project net income $297,600 ($377,472) $448,804 $916,468 $1,025,562 Plus: Depreciation 2,000,000 3,200,000 1,900,000 1,200,000 1,100,000 Plus: Net land salvage value 180,000 Plus: Net building/equipment salvage value 3,240,000 Net cash flow ($10,200,000) $2,297,600 $2,822,528 $2,348,804 $2,116,468 $5,545,562 Cumulative net cash flow ($10,200,000) ($7,902,400) ($5,079,872) ($2,731,068) ($614,600) $4,930,962 (For payback calculation) Profitability and Breakeven Measures: Net present value (NPV) $875,020 Internal rate of return (IRR) 12.9% Modified IRR (MIRR) 11.8% Copyright 2014 Health Administration Press the appropriate input values and enter them into the model. These cells are colored red . create their own if required by the case . Furthermore, students must create their own
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