Green Valley Medical Center, David W. Young

Overview

This is a case about capital budgeting, but the focus is on capital budgeting as a system and as a component of an organizations strategic planning process. While the cases has issues specific to a hospital, the major learning objectives are relevant to any organization or industry. The case will require you to use financial skills from your readings to calculate net present values, internal rates of return and in deriving appropriate discount rates, but the fundamental objectives arent mechanical. They are to assess the various components and characteristics of capital budgeting systems to determine how well they fit the specific needs of an organization.

Requirements

The following is required for this case study:

What are the key elements of GVMCs strategy?

Why does the existing capital budgeting system need to be changed?

How do you think the two projects will fare under Mr. Kleins new capital budgeting technique? As part of your assessment, calculate each projects net present value (NPV) and internal rate of return (IRR). Then fill out Exhibit 2, and complete Exhibit 3.

Assuming only one project can be accepted, which one should it be? Which one do you think will be accepted?

Instructions

The requirements should be completed in a word file. You can submit your calculations in a referenced excel file, or you can input them into your final word document.

Discussions

Of the two projects discussed in case, which one do you think the hospital should fund, assuming that they can only take on one of the projects in the current year?

Discuss what is broke with the capital budgeting process at Green Valley Medical Center.

Calculate the Return on Assets for the hospital. How does this compare to its financing costs?