Question
Southland Hospital is considering establishing a managed care organization. The initial investment in the venture is estimated at $7.5 million. Your financial analyst estimates that
Southland Hospital is considering establishing a managed care organization. The initial investment in the venture is estimated at $7.5 million. Your financial analyst estimates that the expected net cash flow from operations in year 1 would be $900,000, then $950,000 in year 2, $1.5 million in year 3, $2.0 million in year 4 and year 5. It is expected that at the end of year 5, the new managed care organization will be sold for $500,000.
If Southland uses an 8 percent corporate cost of capital:
1. What is the internal rate of return? ___%
-What is the modified internal rate of return? ____%
-If this venture is of average risk, what is its net present value? ____$
- Should you invest in the new managed care organization? Yes or No
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