Please answer questions 1-7 in detail and kindly show all work all part of singl
ID: 2652940 • Letter: P
Question
Please answer questions 1-7 in detail and kindly show all work all part of single case:
CAPITAL INVESTMENT FINANCE CASE STUDY
Questions and case study is posted at link below:
(Capital Investment Analysis) Twin Falls Community Hospital is a 250-bed, not-for-profit hospital located in the city of Twin Falls, the largest city in Idaho's Magic Valley region and the seventh largest in the state. The hospital was founded in 1972 and today is acknowledged to be one of the leading healthcare providers in the area. Twin Falls' management is currently evaluating a proposed ambulatory (outpatient) surgery center. Over 80 percent of all outpatient surgery is performed by specialists in gastroenterology, gynecology, ophthalmology otolaryngology, orthopedics, plastic surgery, and urology Ambulatory surgery requires an average of about one and one-half hours; minor procedures take about one hour or less, and major procedures take about two or more hours. About 60 percent of the procedures are performed under general anesthesia, 30 percent under local anesthesia, and 10 percent under regional or spinal anesthesia. In general, operating rooms are built in pairs so that a patient can be prepped in one room while the surgeon is completing a procedure in the other room The outpatient surgery market has experienced significant growth since the first ambulatory surgery center opened in 1970. This growth has been fueled by three factors. First, rapid advancements in technology have enabled many procedures that were historically performed in inpatient surgical suites to be switched to outpatient settings. This shift was caused mainly by advances in laser, laparoscopic, endoscopic, and arthroscopic technologies. Second, Medicare has been aggressive in approving new minimally invasive surgery techniques, so the number of Medicare patients utilizing outpatient surgery services has grown substantially. Finally, patients prefer outpatient surgeries because they are more convenient, and third-party payers prefer them because they are less costly. These factors have led to a situation in which the number of inpatient surgeries has grown little (if at all) in recent years while the number of outpatient procedures has been growing at over 10 percent annually and now totals about 22 million a year. Rapid growth in the number of outpatient surgeries has been accompanied by a corresponding growth in the number of outpatient surgical facilities. The number currently stands at about 5,000 nationwide, so competition in many areas has become intense. Somewhat surprisingly, there is no outpatient surgery center in the Twin Falls area, although there have been rumors that local physicians are exploring the feasibility of a physician-owned facility.Explanation / Answer
1) Years 0 1 2 3 4 5 Land opportunity cost -$500,000 Building/equipment cost -$10,000,000 Net revenues (20 procedure x 250 days x$1000); 3% increase each year. $5,000,000 $5,150,000 $5,304,500 $5,463,635 $5,627,544 Less: Labor costs(3% increase each year.) $800,000 $824,000 $848,720 $874,182 $900,407 Utilities costs (3% increase each year.) $50,000 $51,500 $53,045 $54,636 $56,275 Supplies (3% increase each year.) $2,000,000 $2,060,000 $2,121,800 $2,185,454 $2,251,018 Incremental overhead (3% increase each year.) $36,000 $37,080 $38,192 $39,338 $40,518 Net income $2,114,000 $2,177,420 $2,242,743 $2,310,025 $2,379,326 Plus: Net land salvage value $500,000 Plus: Net building/equipment salvage value $5,000,000 Net cash Flow -$10,500,000 $2,114,000 $2,177,420 $2,242,743 $2,310,025 $7,879,326 2) Years 0 1 2 3 4 5 Land opportunity cost -$500,000 Building/equipment cost -$10,000,000 Net revenues (20 procedure x 250 days x$1000); 3% increase each year. $5,000,000 $5,150,000 $5,304,500 $5,463,635 $5,627,544 Less: Labor costs(3% increase each year.) $800,000 $824,000 $848,720 $874,182 $900,407 Utilities costs (3% increase each year.) $50,000 $51,500 $53,045 $54,636 $56,275 Supplies (3% increase each year.) $2,000,000 $2,060,000 $2,121,800 $2,185,454 $2,251,018 Incremental overhead (3% increase each year.) $36,000 $37,080 $38,192 $39,338 $40,518 Net income $2,114,000 $2,177,420 $2,242,743 $2,310,025 $2,379,326 Plus: Net land salvage value $500,000 Plus: Net building/equipment salvage value $5,000,000 Net cash Flow -$10,500,000 $2,114,000 $2,177,420 $2,242,743 $2,310,025 $7,879,326 PV of $1 @ 10% 1 0.9091 0.8264 0.7513 0.6830 0.6209 Present Value -$10,500,000 $1,921,818 $1,799,521 $1,685,006 $1,577,778 $4,892,441 NPV $1,376,564 IRR 14.01% Pay back Period Net cash Flow -$10,500,000 $2,114,000 $2,177,420 $2,242,743 $2,310,025 $7,879,326 Cumulative cash flow -$10,500,000 -$8,386,000 -$6,208,580 -$3,965,837 -$1,655,813 $6,223,513 Payback period = 5 years + $1,655,813/$7,879,326 5.21 years