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13-3 The chief operating officer (COO) of a small, not-for-profit community hospital has to make a recommendation to the board of trustees on choosing among

13-3 The chief operating officer (COO) of a small, not-for-profit community hospital has to make a recommendation to the board of trustees on choosing among three project options for an unrestricted gift of $250,000 that has just been received. The board has established a time horizon of 5 years on this project. The options are described in the following. a. Purchase a 5-year treasury note at an interest rate (annual) of 7%. b. Purchase the practice of a young physician (the hospitals third highest admitter). Estimates of projected cash flows for the practice (post-purchase), are: Probability of Cash Flow Time 60% 20% 20% t + 1 $ 40,000 $20,000 $ 60,000 t + 2 $ 60,000 $30,000 $ 80,000 t + 3 $ 75,000 $40,000 $100,000 t + 4 $100,000 $50,000 $125,000 t + 5 $100,000 $50,000 $125,000

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