Question
Allegheny Community Hospital is a nonprofit hospital operated by the county. The hospitals administrator is considering a proposal to open a new outpatient clinic in
Allegheny Community Hospital is a nonprofit hospital operated by the county. The hospitals administrator is considering a proposal to open a new outpatient clinic in the nearby city of New Castle. The administrator has made the following estimates pertinent to the proposal.
- Construction of the clinic building will cost $720,000 in two equal installments of $360,000, to be paid at the end of 20x0 and 20x1. The clinic will open on January 2, 20x2. All staffing and operating costs begin in 20x2.
- Equipment for the clinic will cost $75,000, to be paid in December of 20x1.
- Staffing of the clinic will cost $600,000 per year.
- Other operating costs at the clinic will be $90,000 per year.
- Opening the clinic is expected to increase charitable contributions to the hospital by $150,000 per year.
- The clinic is expected to reduce costs at Allegheny Community Hospital. Annual cost savings at the hospital are projected to be $800,000.
- A major refurbishment of the clinic is expected to be necessary toward the end of 20x5. This work will cost $105,000.
- Due to shifting medical needs in the county, the administrator doubts the clinic will be needed after 20x9.
- The clinic building and equipment could be sold for $150,000 at the end of 20x9.
- The hospitals hurdle rate is 12 percent.
Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)
Required:
1-3. Fill in the following table to compute the net present value of the proposed outpatient clinic.
4. Should the administrator recommend to the hospital's trustees that the clinic be built?
Future Value and Present Value Tables Table 1 Future Value of $1.0011+ Period 45 1414 4. 2# 4 40 24 1. 4f4 4 .? 74 974 3 1.44) 1. 4 1.7| 13 3 251 s 34# atOE 347 33 2CH 42 13774 2 3 / 4 24 #jt . 7 3 f6443743 324 .74440 0 17.40 23 9% 84] 3 .pajnft ; S. + 41 fl616F1 1E146gbf W 40 Period Table II Future Value of a series of 31.00 Cash Flows Ordinary Amu + = E%B 1342 4 ) . JPG 2[a] 1 3.1 3142f 3310837 247474. 04.[444.77 47, 7y4 744E E: B49009 10/ 1216 0Fr jfhE37 114# 123@ 1833 jE4 4+ =Jf } 13 70/ 144/ 15. B /54 4 3 / br 14940 110 E L H/ 1154 /2/ n: 4 53 htm 1]#/ 447 4 1 224 [ H24 4577032 237.5g/ . 152 ] [24 ] .16 31.// 3 9240 27 4 57.276 7.7E + [EIA 9 reg1: ca // A 34fE4 4) fc157? c1f4 577e7434 10) 13431/ Table III Present of $100 [1 + ) * 34u f a7774374EFF 7? fit ? 574 3) 34.74.75172 [44 & qg g 4@ 40047744 iJA / /5 F E % /v/ 41/ E/ ? / / 2 0 3.747&E14607.4944374204424EptgA 1 2,707444t7039; g2707 9] . E3443@4 43429492.& 191 73474) + F4043E19Ef#33] 157 |31fr 1 2004jt 209314.1441#c48? 400?t 4436?? 03|/ gpr++ regta [g 1| HS/ 5374 36) 27 W a ? 1? | /9 / t 5 / / 4 24W2249320/f443/420gg643] 1 #4 Afti A w & 1481 ) [a] [utfF %E040 @33fc7 1p44 40 gs pp . 1 2 0 .cg? 04 . 03 ] [ 43 44731294.841ce [ry6c8404@ g02 H0 4%jijE14/A Int/IEWy90107f6fry 3 474cgg / g 02 . 04 ccg @ domDA = *# 4 fjft %E (Fr @fifrit- Table IV Present Value of Series of $1.00 Cash Flows eri4x6 ] 14162082224282a] 0+ 340 T+ are (0 Fet] 0 0 0 0Ft 04: 0 A# 0F] 07A 0.534 0.7 16 1 .1 1 S g ei@ 241474 ( 42 43 4 A** 3.0 3.4EE 238 3.4 3 [C3294427* 279 2 | 244 2.44 22 23 244 24 A_ 4E? |334 127 2 faE 24} 17, 1:|:17 gt Af 174E 2Fap9 A EP 234 242 42 43 Fgggag # r 3 2#| sg 23 R? A# 41 45 4Fai 4] ] fat 3 FE },41 124 21et A#3 ] 19 %7 .747 32; 494E4344403E
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