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In: Finance
A hospital is considering building a clinic. Two years ago the board had a feasibility study...
A hospital is considering building a clinic. Two years ago the board had a feasibility study done for $25,000 that indicated it was likely a profitable venture. The land would get $100,000 if sold in today’s market. Constructing and equipping the clinic will be $4,000,000. Management believes the center will generate17,500 visits per year. In Year 1, revenue is expected to be $125 per visit, supply cost will be $25 per visit and labor cost (which will not vary with volume) will be $750,000. Inflation is projected at 3% per year after that. The hospital’s corporate cost of capital is 7.50%.
A. Construct a five-year cash flow analysis for this project (i.e. Years 0 to Year 5) and include initial cash outflows, revenue, supply cost, labor cost and net cash flow. What is the NPV for this project? what is the volume of visits that will generate a breakeven NPV for the project?
B. If the hospital proceeds with the project, the hospital will lose about 750 visits at an existing on-site clinic. In Year 1, these visits are projected to bring in $75 per visit. How does this change, if at all, your analysis from above?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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