Question
Shrieves Hospital Ltd. is considering adding a new line to its diagnostic product mix, and the capital budgeting analysis is being conducted by Sidney Johnson,
Shrieves Hospital Ltd. is considering adding a new line to its diagnostic product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MHA. A new bone density scanner would be set up in unused space in Shrieves's main clinic. The machinery's invoice price would be approximately $200,000; another $10,000 in shipping charges would be required; and it would cost anadditional $30,000 to install the equipment. The machinery has an economic life of four years, and Shrieves has obtained a special tax ruling which places the equipment in the MACRS three-year class. The machinery is expected to have a salvage value of $25,000 after four years of use. The new line would generateincremental sales of 1,250 scans per year for four years at an incremental cost of $100 per scan in the first year, excluding depreciation. Each scan would generate revenue of $200 in the first year. The price and cost of each scan are expected to increase by 3 percent per year due to inflation. Further, to handle The new line, the hospital's net operating working capital would have to increase by an amount equal to 12percent of sales revenues*. The hospital's tax rate is 20 percent, and its corporate cost of capital is 10percent.
b. Perform a scenario analysis using the worst-, most likely, and best-case probabilities in the table below:
Scenario | Probability | # of scans | Price per scan
Best 25% 1,600 $240
Most likely 50% 1,250 $200
Worst 25% 900 $160
b. Change the number of scans and price per scan in cells I51 and I52 to the values in the table below and you will obtain the NPVs in the far right column in the table below.
Scenario Probability # of scans Price per scan NPV
Best case 0% 0 $0 $0
Base case 0% 0 $0 $0
Worst case 0% 0 $0 $0
**I need to know how to fill this table out^^
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