You’ve got the numbers and the CFO wants you to explain how this investment will be worth it. You will have to spend up front $2,000,000 to build a new OR and obtain equipment just to handle the procedure and then pay another $200,000 per year to a physician who will perform the procedure. You expect that it will take a while before the general public becomes aware of the availability of the procedure, so it will take $40,000 the first year, and $10,000 each year after that. For the sake of simplicity, assume that you will receive $1,000 from insurance for each procedure. The first year you will have 400 procedures and it will grow by 200 procedures each year.

Compute the following: 

· Using the payback method, how long will it take to recover the initial investment? 

· If the hurdle rate is 10%: o What is the future value of the initial investment?

· Assume the future value is the cost of everything you will pay out over the five years, except for the initial investment. What is the present value? 

· What is the IRR? 

· Should you invest? Why or why not?