Twin Falls Community Hospital (Capital Investment Analysis) – Solution


Twin Falls Community Hospital
(Capital Investment Analysis) – Answers


  1. Complete Table 1 by adding the cash flows for years four and five.
  2. What is the project’s payback and net present value (NPV)?  Interpret each of these measures.
  3. Suppose that the project would be allocated $10,000 of existing overhead costs. Should these costs be included in the cash flow analysis? Explain.
  4. 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?
  5. 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?
  6. What is your final recommendation regarding the proposed outpatient surgery center?

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