Twin Falls Community Hospital (Capital Investment Analysis) – Solution
Twin Falls Community Hospital
(Capital Investment Analysis) – Answers
- Complete Table 1 by adding the cash flows for years four and five.
- What is the project’s payback and net present value (NPV)? Interpret each of these measures.
- Suppose that the project would be allocated $10,000 of existing overhead costs. Should these costs be included in the cash flow analysis? Explain.
- Conduct a scenario analysis. What is its expected NPV? What is the worst- and best-case NPVs? How does the worst-case value help in assessing the hospital’s ability to bear the risk of this investment?
- Now assume that the project is judged to have high risk. Furthermore, the hospital’s standard procedure is to use a three percentage point risk adjustment. What is the project’s NPV after adjusting for the assessment of high risk?
- What is your final recommendation regarding the proposed outpatient surgery center?