A hospital has an unimproved lot a few miles from the hospital itself on which it is considering building a health clinic. Two years ago the board had a feasibility study done for $100,000 that indicated it was likely a profitable venture but the board never acted on it. The plan was recently resurrected with updated numbers and the board is considering the investment again.

A hospital has an unimproved lot a few miles from the hospital itself on which it is considering building a health clinic. Two years ago the board had a feasibility study done for $100,000 that indicated it was likely a profitable venture but the board never acted on it. The plan was recently resurrected with updated numbers and the board is considering the investment again. The land would get $500,000 if sold in todays market. Constructing and equipping the clinic will be $5,500,000. Management believes the center will generate 21,000 visits per year. In Year 1, revenue is expected to be $150 per visit, supply cost will be $32.50 per visit and labor cost (which will not vary with volume) will be $1,000,000. Inflation is projected at 3.25% per year after that. The hospitals corporate cost of capital is 7.25%. Construct a five-year cash flow analysis for this project (i.e. Years 0 to Year 5). Line items should include initial cash outflows, revenue, supply cost, labor cost and net cash flow. What is the NPV for this project? Extra credit (1 pt) what is the volume of visits that will generate a breakeven NPV for the project. Note there is no formula for this; trial and error in your cash flow spreadsheet is necessary.

The land would get $500,000 if sold in todays market. Constructing and equipping the clinic will be $5,500,000. Management believes the center will generate 21,000 visits per year. In Year 1, revenue is expected to be $150 per visit, supply cost will be $32.50 per visit and labor cost (which will not vary with volume) will be $1,000,000. Inflation is projected at 3.25% per year after that. The hospitals corporate cost of capital is 7.25%.

Construct a five-year cash flow analysis for this project (i.e. Years 0 to Year 5). Line items should include initial cash outflows, revenue, supply cost, labor cost and net cash flow. What is the NPV for this project?

Extra credit (1 pt) what is the volume of visits that will generate a breakeven NPV for the project. Note there is no formula for this; trial and error in your cash flow spreadsheet is necessary.

A hospital has an unimproved lot a few miles from the hospital itself on which it is considering building a health clinic. Two years ago the board had a feasibility study done for $100,000 that indicated it was likely a profitable venture but the board never acted on it. The plan was recently resurrected with updated numbers and the board is considering the investment again.

The land would get $500,000 if sold in todays market. Constructing and equipping the clinic will be $5,500,000. Management believes the center will generate 21,000 visits per year. In Year 1, revenue is expected to be $150 per visit, supply cost will be $32.50 per visit and labor cost (which will not vary with volume) will be $1,000,000. Inflation is projected at 3.25% per year after that. The hospitals corporate cost of capital is 7.25%.

Construct a five-year cash flow analysis for this project (i.e. Years 0 to Year 5). Line items should include initial cash outflows, revenue, supply cost, labor cost and net cash flow. What is the NPV for this project?

Extra credit (1 pt) what is the volume of visits that will generate a breakeven NPV for the project. Note there is no formula for this; trial and error in your cash flow spreadsheet is necessary.

In the case above, several within the finance department noted that some of the visits to the new clinic will not actually be "new" but will instead be patients that used to go to the clinic at the hospital per lost visit.

but prefer the new clinic because of its location. Staff estimated that 1,000 of the projected 21,000 visits at the new site will be patients that would have gone to the clinic at the hospital.

Further, staff estimated that these "lost" patients will reduce net income at the hospital by $95 per lost visit. How does this information change your assessment of the profitability of the new clinic?