THE FORBES OBGYN GROUP PURCHASED A NEW DIAGNOSTIC MACHINE FOR THEIR OFFICE

Healthcare Financial Management and Economics

Week 10 Assignment – Capital Budgeting

1.    If a physician deposits $24,000 today into a mutual fund that is expected to grow at an annual rate of 8%, what will be the value of this investment:

a.    3 years from now

b.    6 years from now

c.    9 years from now

d.    12 years from now

2.    The Chief Financial Officer of a hospital needs to determine the present value of $120,000 investment received at the end of year 5. What is the present value if the discount rate is:

a.    3%

b.    6%

c.    9%

d.    12%

3.    The Forbes OBGYN group purchased a new diagnostic machine for their office for $900,000. The expected cash flows for each year of the five year period is $120,000, $155,000, $186,000, $208,000, and $225,000 for the five years. What is the internal rate of return or the IRR for the project?

4.    Determine the Net Present Value for Problem 3 with an interest rate of 10%. Do you proceed or not with the project?

5.    Determine the Payback Period for Problem 3.