You are the new CFO of SUS Hospital. You have been asked to assess several capital projects being considered and make recommendations to the shareholders at their upcoming meeting. Because you are new to your position and feeling a bit overwhelmed, you have decided to outline the four basic steps you need to do and tackle them one by one.

Describe in detail the four steps in the analysis process. This is to include everything a financial manager would need to do from beginning to end in order to decide whether or not to accept the project. Make sure to include the non-financial considerations, as well.

1. Compute the internal rate of return (IRR) and the net present value (NPV) for each project.

2. Based strictly on the calculations, which projects should be accepted or rejected?

3. What type of non-financial data should be considered for each project?

Project A Additional MRI machine for SUS Hospital

The department manager who oversees the Imaging Department has identified the need for an additional MRI machine. Its cost would be $2,355,600 and the anticipated revenue stream for the next 10 years is $400,000 per year.

Project B Outpatient Rehabilitation Services

SUS Hospital is considering adding a service line: outpatient rehabilitation services. The cost to get the program up and running is $2,441,700 and the anticipated revenue stream for this project is $450,000 per year for the next 10 years.

Project C Replacement Generator

Plant Operations has indicated SUS Hospital is in need of replacement parts for the HVAC system. Although there are much newer and more efficient models, the Plant Operations Director is sure it will save the hospital quite a bit of money to buy replacement parts instead of a brand new system. The parts would cost $145,680 and they are expected to provide cost savings of $15,000 per year for 15 years.