Hi Linda I need to edit my work will give you more money please do question 14.1 as planed in assignment. but I need this questions instead by Tuesday evening 2pm.
14.4 Great Lakes Clinic has been asked to provide exclusive healthcare services for next year’s World Exposition. Although flattered by the request, the clinic’s managers want to conduct a financial analysis of the project. There will be an up-front cost of $160,000 to get the clinic in operation. Then, a net cash inflow of $1 million is expected from operations in each of the two years of the exposition. However, the clinic has to pay the organizers of the exposition a fee for the marketing value of the opportunity. This fee, which must be paid at the end of the second year, is $2 million.
- a. What are the cash flows associated with the project?
- b. What is the project’s IRR?
- c. Assuming a project cost of capital of 10 percent, what is the project’s NPV?
- d. What is the project’s MIRR?
14.6 The director of capital budgeting for Big Sky Health Systems, Inc., has estimated the following cash flows in thousands of dollars for a proposed new service:
year expected net cash flow
The project’s cost of capital is 10 percent.
- a. What is the project’s payback period?
- b. What is the project’s NPV?
- c. What is the project’s IRR? Its MIRR?
14.7 California Health Center, a for-profit hospital, is evaluating the purchase of new diagnostic equipment. The equipment, which costs $600,000, has an expected life of five years and an estimated pretax salvage value of $200,000 at that time. The equipment is expected to be used 15 times a day for 250 days a year for each year of the project’s life. On average, each procedure is expected to generate $80 in collections, which is net of bad debt losses and contractual allowances, in its first year of use. Thus, net revenues for Year 1 are estimated at 15 × 250 × $80 = $300,000.
Labor and maintenance costs are expected to be $100,000 during the first year of operation, while utilities will cost another $10,000 and cash overhead will increase by $5,000 in Year 1. The cost for expendable supplies is expected to average $5 per procedure during the first year. All costs and revenues, except depreciation, are expected to increase at a 5 percent inflation rate after the first year.
The equipment falls into the MACRS five-year class for tax depreciation and hence is subject to the following deprecation allowances:
The hospital’s tax rate is 40 percent, and its corporate cost of capital is 10 percent.
a. Estimate the project’s net cash flows over its five-year estimated life.
0 1 2 3 4 5
less: labor/ maintenance cost
net operating income
Plus: equipment salvage value
net cash flow
b. What are the project’s NPV and IRR? (Assume for now that the project has average risk.)