Question
San Joaquin Community Hospital is a nonprofit hospital operated by the county. The hospitals administrator is considering a proposal to open a new outpatient clinic
San Joaquin 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 San Marco. The administrator has made the following estimates pertinent to the proposal. |
1. | Construction of the clinic building will cost $940,000 in two equal installments of $470,000, 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. |
2. | Equipment for the clinic will cost $130,000, to be paid in December of 20x1. |
3. | Staffing of the clinic will cost $820,000 per year. |
4. | Other operating costs at the clinic will be $178,000 per year. |
5. | Opening the clinic is expected to increase charitable contributions to the hospital by $260,000 per year. |
6. | The clinic is expected to reduce costs at San Joaquin Community Hospital. Annual cost savings at the hospital are projected to be $1,020,000. |
7. | A major refurbishment of the clinic is expected to be necessary toward the end of 20x5. This work will cost $160,000. |
8. | Due to shifting medical needs in the county, the administrator doubts the clinic will be needed after 20x9. |
9. | The clinic building and equipment could be sold for $260,000 at the end of 20x9. |
10. | 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. (Round your "Discount factors" to 3 decimal places. Negative amounts should be indicated by minus sign.) |
4. | Should the administrator recommend to the hospital's trustees that the clinic be built? | ||||
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