| | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Nurse Triage Salaries | $ 523,800 | $ 549,990 | $ 577,490 | $ 606,364 | $ 636,682 | $ 668,516 |
| Forecasted ER Cost Reductions | $ 400,000 | $ 800,000 | $ 848,000 | $ 900,577 | $ 955,512 | $ 1,013,798 |
| New IT Specialist's Salary | $ 150,000 | $ 154,500 | $ 159,135 | $ 163,909 | $ 168,826 | $ 173,891 |
| Costs of Facility Renovations | $ 30,000 | $ - 0 | $ - 0 | $ - 0 | $ - 0 | $ - 0 |
| Necessary Capital Equipment Purchases | $ 117,000 | $ 3,510 | $ 3,510 | $ 3,510 | $ 3,510 | $ 3,510 |
| Net Cash Flow: | $ (420,800) | $ 92,000 | $ 107,865 | $ 126,794 | $ 146,494 | $ 167,881 |
| Present Value Factor= | value previous year/(110%) |
| Cost of Capital = 11% | 0.11 |
| Year 0 | 1.00 |
| Year 1 (1-11%) | 0.90 |
| Year 2 | 0.81 |
| Year 3 | 0.73 |
| Year 4 | 0.66 |
| Year 5 | 0.59 |
| Present Values of Net Cash Flows: | $ (420,800) | $ 82,882.88 | $ 87,545.65 | $ 92,710.68 | $ 96,500.14 | $ 99,629.20 | Calculated =Net cash flow * Present value factor |
| Net Present Value: | $ 38,468.55 | | | | | | Calculated = Sum of all Present values year 0-5 |
| Internal Rate of Return (IRR): | 14.21% | Measures the discount rate that makes the Net Present Value =0. IRR is used to estimate the profitability of potential investments as it assumes the cash flows from a project are reinvested at the IRR. |
| Modified Internal Rate of Return (MIRR): | 12.96% | MIRR assumes that positive cash flows are reinvested at the firm's cost of capital. It is considered that the MIRR more accurately reflects the cost and profitability of a project. |
| The IRR and MIRR measure profitability of the project. We use the 11% cost of capital that is provided. As long as the IRR and MIRR are higher, Jiranna would consider moving forward with the project as it would be profitable. |
| | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Cash Flow | $ (420,800.00) | $ 92,000.00 | $ 107,865.00 | $ 126,794.00 | $ 146,494.00 | $ 167,881.00 |
| Cumulative Cash Flow(previous year cumilative+current year cash flow) | $ (420,800.00) | $ (328,800.00) | $ (220,935.00) | $ (94,141.00) | $ 52,353.00 | $ 220,234.00 | Year 3 is the last year when cumulative cash flow is negative. |
| Present values of net cash flow (same as column 8) | $ (420,800.00) | $ 82,882.88 | $ 87,545.65 | $ 92,710.68 | $ 96,500.14 | $ 99,629.20 |
| Discounted cash flow(previous year present value of net cash flow+previous year cumulative) | $ (420,800.00) | $ (337,917.12) | $ (250,371.46) | $ (157,660.78) | $ (61,160.65) | $ 38,468.55 | Year 4 is the last year when discounted cumulative cash flow is negative |
| Payback Period (# years): | 3.64 | | | Calculated = full years recovery (3) + (Absolute value of cumulative cash at the end of year 3 =94141)/(cash flow in following year= 146494) | | | The payback period calculates the time required for the initial capital invested in a project to be repaid by the net cash flow that has been generated. It is a metric used to evaluate the risk associated with a project. A shorter payback period is considered to be better as it shows the project is less risky. |
| Discounted Payback Period (# years): | 4.61 | | | Formula using Discounted cash flow below = full years recovery (3) + (Absolute value of cumulative cash at the end of year 3 =94141)/(cash flow in following year 146494) | | | Also used to evaluate the rish associated with a project but it uses the net present value of future cash flows. Due to the time value of money, the discounted payback period can be a more accurate predictor of rish than the regular payback period as it takes into account discounted cash flows. |
| The payback period for the centralized call center is 3.64 years and the discounted payback period is 4.21 years, which is even longer. Jiranna Healthcare has a corporate policy that it is only willing to take on a project that takes no more than 3.5 years to pay for itself. Therefore, this project would be too risky for Jiranna to move forward with. |
cutie123221
FM007_Part2Spreadsheet5.xlsx
