Assignment #4

ASSIGNMENT 4

1. Your organization has been asked to invest in a continuing care retirement center. Your investment will be $600,000 per year for the next five years. After five years, cash flows will be $400,000 per year for the next 15 years. If your discount rate is 10 percent:

a) What is the present value of the investment?

b) What is the present value of the cash flows? (Assume years 1-5 have $0 cash flows)

c) What is the profitability index?

2. Your hospital is considering buying personal computers to install in each patient’s room. The cost of the investment to the hospital will be $1,400,000. It is expected that these PCs will reduce nursing costs by $200,000 per year for the next seven years. If your discount rate is 10 percent,

a) What is the Net Present Value of the investment?

b) What is the profitability index of this investment?

3. Biogen, Inc. has a cost of capital of 9%, and it has a project with the following cash flows. What is the NPV of this project?

Year Net Cash Flow

0 -100,000

1 –20,000

2 20,000

3 100,000

4 150,000

5 175,000

Rubrics:

Submission 50%

Problem 1a 10%

Problem 1b 10%

Problem 1c 5%

Problem 2a 10%

Problem 2b 5%

Problem 3 10%