The Assignment Elevate Healthcare Corporation manages the back office functions of private medical practices. The company is analyzing a project to digitize the collection of medical records. Last year, the company spent $400,000 during a pilot project to prove that the digitization project was a viable idea, and now the company is evaluating whether to invest in it. Acquiring the necessary computer hardware and software to implement the project will cost $2,750,000. In addition, successful implementation will require Elevate to spend $760,000 to install and customize the software, plus $240,000 to purchase hand-held digital devices that medical staff will use to record medical data. Elevate will depreciate the system over 4 years to a net book value of zero. Elevate expects an immediate increase in its Accounts Receivable balance of $200,000, and an immediate decrease in Accrued Liabilities of $100,000. When the project ends, the current accounts are expected to return to their pre-project levels. The project is expected to generate savings of $1,200,000 in Selling, General and Administrative expenses during the first year of the project. As more and more records are digitized, the incremental savings each year (relative to the prior year) will decline. Accordingly, the annual savings are expected to decrease 3.50% per year through the end of the four-year project, at which point the project will be completed. Elevate estimates that it could sell the entire system, including the handhelds, for $200,000 at the end of the project's four-year life. The entire digitization project is of average risk relative to the company's other investments. The company intends to maintain a constant debt-to-equity ratio. Elevate has 5,000,000 common shares outstanding; the current price per share is $18.80. Elevate's beta is 1.20. Three years ago, Elevate issued $40,000,000 million of 10-year, 4% coupon bonds; the bonds were issued at their par value of $1,000.00 per bond. The bonds are rated AAA. They are currently priced at $1,004.25 per bond. Coupons are paid semi-annually. Elevate has no other interest-bearing debt. The company expects the stock market to generate a return of 12.00% during the coming year. US Treasury bills are expected to yield 0.05%. The company's combined federal and state income tax rate is 22.00%. Develop a spreadsheet to answer the questions recorded below. Round all dollar values, except per share and per bond data, to the nearest whole dollar. Round all percentages to two decimal places. Use text boxes to answer narrative questions. 1. What is the initial investment required to implement the project? 2. What are the future operating cash flows to be generated by the project? 3. What is the future terminal (non-operating) cash flow that will result from the project? 4. What is the expected rate of return on Elevate's common stock, Rs? 5. What is the pre-tax cost of Elevate's bonds, Ro? 6. What is Elevate's Weighted Average Cost of Capital (WACC)? 7. What is the project's Net Present Value (NPV)? 8. What is the project's Internal Rate of Return (IRR)? 9. Should Capital implement the project? Why or why not? Answer this question in two different ways, using the results of both your NPV and IRR calculations. 10. How much does the project earn? Answer this question in two different ways, using the results of both your NPV and IRR calculations. 11. What will be Elevate's expected stock price after implementing the project? The Assignment Elevate Healthcare Corporation manages the back office functions of private medical practices. The company is analyzing a project to digitize the collection of medical records. Last year, the company spent $400,000 during a pilot project to prove that the digitization project was a viable idea, and now the company is evaluating whether to invest in it. Acquiring the necessary computer hardware and software to implement the project will cost $2,750,000. In addition, successful implementation will require Elevate to spend $760,000 to install and customize the software, plus $240,000 to purchase hand-held digital devices that medical staff will use to record medical data. Elevate will depreciate the system over 4 years to a net book value of zero. Elevate expects an immediate increase in its Accounts Receivable balance of $200,000, and an immediate decrease in Accrued Liabilities of $100,000. When the project ends, the current accounts are expected to return to their pre-project levels. The project is expected to generate savings of $1,200,000 in Selling, General and Administrative expenses during the first year of the project. As more and more records are digitized, the incremental savings each year (relative to the prior year) will decline. Accordingly, the annual savings are expected to decrease 3.50% per year through the end of the four-year project, at which point the project will be completed. Elevate estimates that it could sell the entire system, including the handhelds, for $200,000 at the end of the project's four-year life. The entire digitization project is of average risk relative to the company's other investments. The company intends to maintain a constant debt-to-equity ratio. Elevate has 5,000,000 common shares outstanding; the current price per share is $18.80. Elevate's beta is 1.20. Three years ago, Elevate issued $40,000,000 million of 10-year, 4% coupon bonds; the bonds were issued at their par value of $1,000.00 per bond. The bonds are rated AAA. They are currently priced at $1,004.25 per bond. Coupons are paid semi-annually. Elevate has no other interest-bearing debt. The company expects the stock market to generate a return of 12.00% during the coming year. US Treasury bills are expected to yield 0.05%. The company's combined federal and state income tax rate is 22.00%. Develop a spreadsheet to answer the questions recorded below. Round all dollar values, except per share and per bond data, to the nearest whole dollar. Round all percentages to two decimal places. Use text boxes to answer narrative questions. 1. What is the initial investment required to implement the project? 2. What are the future operating cash flows to be generated by the project? 3. What is the future terminal (non-operating) cash flow that will result from the project? 4. What is the expected rate of return on Elevate's common stock, Rs? 5. What is the pre-tax cost of Elevate's bonds, Ro? 6. What is Elevate's Weighted Average Cost of Capital (WACC)? 7. What is the project's Net Present Value (NPV)? 8. What is the project's Internal Rate of Return (IRR)? 9. Should Capital implement the project? Why or why not? Answer this question in two different ways, using the results of both your NPV and IRR calculations. 10. How much does the project earn? Answer this question in two different ways, using the results of both your NPV and IRR calculations. 11. What will be Elevate's expected stock price after implementing the project