Week 11: Coral Bay Hospital (Case #20, pp. 133-138)

Download the Case 20 excel spreadsheet from here. This spreadsheet contains a model that will assist you in answering the following questions.You should replace the cells in red with the "appropriate" numbers, which may depend on your assumptions.

1.Fill out the "Input Data" section in the spreadsheet to answer:

a.What are the NPV, IRR, MIRR, and payback of the proposed ambulatory surgery center?

b.Do the measures indicate acceptance or rejection of the proposed ambulatory surgery center?

[HINT: Think about the incremental cash flow, which is the difference between the cash flow with the project and cash flow without the project.]

2.One board member wants to make sure that a complete risk analysis, including sensitivity and scenario analyses is performed before the proposal is sent to the board.

a.Perform a sensitivity analysis.

[HINT: For each input-- number of procedures, average revenue per procedure, and building/equipment salvage value-- use the spreadsheet to determine the NPV when the specific input changes by -30%, -20%, -10%, ... 30%.Make a graph of the NPV versus percent change from the base case for each input (i.e. you should have three lines).]

b.What management information is provided by the sensitivity analysis?