The MHA Medical Center expects Project A and Project B to generate the following cash flows. The cash flows within the parentheses, highlighted in red, represent the negative cash flows (i.e., cash outflows).

Project A (in thousands)	Year	0	1	2	3	4	5
Initial investment		($20,000)
Net operating cash flows			($10,000)	$8,000	$12,000	$15,000	$26,000

Project B (in thousands)	Year	0	1	2	3	4	5
Initial investment		($28,000)
Net operating cash flows			$8,000	$8,000	$8,000	$8,000	$8,000

1. Calculate the payback for both projects. Show your calculations below:

1. Calculate the Net Present Value (NPV) manually (i.e., do not use an Excel spreadsheet) for both projects at a cost of capital of 20%. Show your calculation below: (Hint: Use the Present Value Factors [PVF] presented in Zelman's textbook pp.297-298).

1. Based on the results from the two different calculations above, which project would you prefer to implement? Explain your reasoning.

Question #2 (25 points)

The MHA Medical Center is planning to purchase an MRI and a CT scanner for its new imaging center. The equipment is expected to generate $3,000,000 per year in revenues for the next five years. Operating expenses, excluding depreciation, are estimated at $1,200,000 per year for the same period. The initial capital investment outlay for the equipment is $5,500,000, which will be depreciated on a straight-line basis to its salvage value of $800,000 at the end of year five. The cost of capital for this project is 12%.

1. Calculate the Net Present Value (NPV). Use the attached Excel file to perform the calculation; and then copy and paste the screenshot in the box below.

1. Calculate the Internal Rate of Return (IRR). Use the Excel spreadsheet uploaded in the exam folder.Capture your calculation and attached the image below, or upload the Excel file along with your completed exam file to the exam submission folder.

1. Based on the NPV and IRR results, should this project be accepted or rejected? Assume the required rate of return is 13%. Explain your reasoning.

Section B: Break-Even Analysis and Budgeting

Question #3 (15 points)

Briefly explain the following terms in your own words.

1. Break-even analysis and break-even point

1. Fixed-costs and variable-costs

1. Total contribution margin

1. Product margin

Question #4 (15 points)

The following table contains selected data regarding the operation of the MHA Medical Center. Use the break-even formula to fill in the missing information.

Givens:

Situation	Price	Quantity	Total Fixed Cost	Variable Cost Per Unit
Situation 1	?	2,300	$180,000	$80
Situation 2	$250	?	$180,000	$80
Situation 3	$250	2,300	?	$80
Situation 4	$250	2,300	$180,000	?

1. Break-even price (Situation 1)

Show your calculation:

1. Break-even quantity (Situation 2)

Show your calculation:

1. Break-even total fixed cost (Situation 3)

Show your calculation:

1. Break-even variable cost per unit (Situation 4)

Show your calculation:

Question #5 (10 points)

The following table contains selected data regarding the operation of the MHA Medical Center. Use the break-even and contribution margin formulas to fill in the missing information.

Givens:

Situation	Price Per Visit	Variable Cost Per Visit	Number of Visits	Contribution Margin	Fixed Costs	Net Income
Situation 1	$120	?	4,500	$350,000	?	$65,000
Situation 2	$110	$65	?	$135,000	$75,000	?

1. Break-even variable cost per visit and fixed costs (Situation 1)

Show your calculation:

1. Break-even number of visits and net income (Situation 2)

Show your calculation:

Question #6 (10 points)

The following are the planned and actual revenues for the MHA Medical Center.

Givens:

	Planned budget	Actual budget
Patient volume	42,000	45,000
Patient revenues	$12,600,000	$15,300,000
Revenue per visit	$300	$340

1. Determine the variances between the planned and actual budgets.

Show your calculation:

1. Determine what variance is due to change in volume and what variance is due to change in rates.

Show your calculation: