Question

Please show all work & calculations.

Capitol Healthplan, Inc. is evaluating two different methods for providing home health services to its members. Both methods involve contracting out for services, and the health outcomes and revenues are not affected by the method chosen. Therefore, the incremental cash flows for the decision are all outflows. Here are the projected flows: Year 0 1 2 Method A ($300,000) ($ 66,000) ($66,000) ($ 66,000) ($66,000) ($66,000) Method B ($120,000) ($96,000) ($96,000) ($96,000) ($96,000) ($96,000) 3 4 5 a. What is each alternative's IRR? =irr(cash flows) b. If the cost of capital for both methods is 9 percent, which method should be choosen? Why? =npv(rate,pmts)+initial

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

C ENG 22:58 29-07-2020 99+ 31 Х PY617 . PX PY PZ QA QB QC QD QE year METHOD A METHOD B A B 0 -300000 -120000 -96000 1 -66000 2 -66000 -96000 3 -66000 -96000 617 618 619 620 621 622 623 624 625 626 627 628 629 630 4 -66000 -96000 5 -66000 -96000 a IRR #NUM! (=IRR(QB620:QB625)] #NUM! (=IRR(QA620:QA625)] IRR CAN NOT BE CALCULATED BECAUSE ALL CASHFLOWS ARE NEGATIVE, SAME SIGN CHANGE OF SIGN NEEDED IN ORDER TO CALCULATE IRR 631 632 633 634 b RATE 9% 9% 635 636 NPV -556716.98 -493406.52 (=NPV(QB634,QB621:QB625)+QB620] [=NPV(QA634,QA621:QA625)+QA620] 637 638 639 SINCE WE ARE EXAMINING COSTS, THE UNIT CHOSED WOULD BE ONE WITH LOWER NPVs AS METHOD B HAS LOWER NPV OF COSTS, SELECT METHOD B 640 RATIO PL PBP ARR invest, EAA REPLACEMENTS IRRnpvbeta HPR GMAM EAC MACRS RELEVANT Ml-np-ir BETA LEVERED NPV CCA +