Massachusetts Health Providers (MHP) is a non-profit group of physician practices and is evaluating the creation of a new laboratory testing center in an existing, unused space. Last year MHP spent $150,000 on renovating and finishing this space in anticipation of using for some project in the future.

The laboratory testing equipment needed will cost $1,650,000 and has an expected life of 5 years and a salve value of $550,000. During the first year labor costs will be $275,000, utilities will be $27,500 and MHP will see an additional $13,750. Massachusetts Health Providers expect to run approximately 150 tests a day 250 days a year. Each test will be reimbursed an average of $22.00. Supplies will cost $5.50 per test. All costs and revenues will experience 4% inflation over the life of the project.

Massachusetts Health Providers as a corporate cost of capital of 12 percent.

1. What is the Payback Period, IRR and NPV for this Project?
2. Should MHP accept the laboratory expansion project?
3. Conduct a sensitivity analysis on number of test per day and supplies costs (use a range of +/-30% of expected value with 10% intervals). What variable is MPH most sensitive to?