Chapter 7 Assignment

MHA 740M91 Unit 11 Chpt 7

12. Buxton Community is expecting its new dialysis unit to generate the following cash flows:

Givens	Years	0	1	2	3	4	5
Initial investment		(10,000,000)
Net Operating Cash flows			1,500,000	2,000,000	4,000,000	7,000,000	14,000,000

a. Determine the payback for the new dialysis unit

b. Determine the NPV using a cost of capital of 11%

c. Determine the NPV at cost of capital of 20% and compute the IRR

d. At an 11% cost of capital, should the project be accepted?

At a 20% cost of capital, should the project be accepted?

Explain

14. Castle Rock Medical Center expects Projects X and Y to generate the following cash flows:

NOCF = Net Operating Cash Flows

Givens (thousands)	Years	0	1	2	3	4	5
Initial Investment		(6,500)
Project X NOCF			5,000	3,000	2,000	1,600	1,000
Project Y NOCF			1,000	1,600	2,000	3,000	5,000
Discount rate for Part a	13%
Discount rate for Part b	8%

a. Determine the NPV for both projects using a cost of capital of 13%

b. Determine the NPV for both projects using a cost capital of 8%

c. At an 8% discount rate, which project should be accepted?

At a 13% discount rate, which project should be accepted?

Explain