Question

lakes pur World Exposition. Alth atto conduct a financial We lealthcare services for next Although flattered by the request, the clinic's managers cial analysis of the project. An up-front cost of $160,000 is pic ready. Then, a net cash inflow of $1 million is expected from he two years of the exposition. However, the clinic has to pay position a fee for the marketing value of the opportunity. be paid at the end of the second year, is $2 million. eded to get the clinic rations in each of the ty organizers of the expo: This fee, which must be What are the net & What is the proid e net cash flows associated with the project? he project's internal rate of return (IRR)? biect cost of capital of 10 percent, what is the project's net pres. Assuming a project co ent value (NPV)? California Imaging Ce new diagnostic equipment life of five years and an e equipment is expected to of the project's life. O collections during the ing Center, a not-for-profit business, is evaluating the purchase of equipment. The equipment, which costs $600,000, has an expected rs and an estimated salvage value of $200,000 at that time. The is expected to be used 15 times a day for 250 days a year for each year ect's life. On average, each procedure is expected to generate $8o in cash s during the first year of use. Thus, net revenues for year 1 are estimated at 15 x 250 x $80 = $300,000. Labor and maintenance costs are expected to be $100,000 during the first year of operation, neration, while utilities will cost another $10,000 and cash overhead will increase by $6.000 in year 1. The cost for expendable supplies is expected to average $5 per proce- dure during the first year. All costs and revenues are expected to increase at a 5 percent inflation rate after the first year. The center's corporate cost of capital is 10 percent. 2. Estimate the project's net cash flows over its five-year estimated life. (Hint: Use the following format as a guide.) Year 3 0 1 2 Equipment cost 000.00 Net revenues Less: Labor/maintenance costs Utilities costs Supplies Incremental overhead Operating income Equipment salvage value Net cash flow

Answer 1

Solution for 30.2

Net Cash flow is given below with working in excel

2 15 250 80.00 5.00 5% Year Formulas 1 2 3 6,00,000 3 Number Of Uses Per Day 4 Number Of Days In Year 5 Revenue Per Procedure $ 6 Cost Of Supplies Per Procedure $ 7 Inflation Rate 8 9 California Imaging centre 10 11 Equipment Cost 12 Net revenue 13 Less: Labor/Maintenance Costs 14 Utilities Cost 15 Supplies 16 Incremental Overheads 17 Operating Income 18 Equipment Salvages Value 19 Net Cash Flow 20 3,00,000 1,00,000 10,000 18,750 5,000 1,66,250 3,15,000 1,05,000 10,500 19,688 5,250 1,74,563 3,30,750 1,10,250 11,025 20,672 5,513 1,83,291 3,47,288 1,15,763 11,576 21,705 5,788 1,92,455 3,64,652 1,21,551 12,155 22,791 6,078 2,02,078 2,00,000 4,02,078 =B3B4%B5 =C12*(1+$B$7) =C13*(1+$B$7) *=C14*(1+$B$7) =B3%B4%B6 *=C15*(1+$B$7) =C16*(1+$B$7) =C12-SUM(C13:C16) =D12-SUM(D13:D16) -6,00,000 1,66,250 1,74,563 1,83,291 1,92,455 *=C17+C18 * =D17+D18