Module 6 Assignment: Traditional Project Analysis
CASE 20: CORAL BAY HOSPITAL
Directions: Fully answer each question regarding Case 20: Coral Bay Hospital.
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1. What are the NPV, IRR, MIRR, and payback of the proposed ambulatory surgery center? Do the measures indicate acceptance or rejection of the proposed ambulatory surgery center?
2. Inflation is one of the most difficult factors to deal with in project analysis. Complete the inflation impact table shown in exhibit 20.2 (Hint: see Note at end of document for What-If analysis. What management information is provided by the inflation impact table?
3. Perform a sensitivity analysis by computing the impact of an increase (10%, 20% and 30%) and decrease (10%, 20% and 30%) on three variables (Number of Procedures, Avg Revenue per Procedure and Bldg/Equip Salvage Value) on the NPV. Plot the results. What management information is provided by the sensitivity analysis?
4. Perform a scenario analysis by computing NPV in different scenarios assuming the values given in the Excel file. What management information is provided by the scenario analysis? Why is the expected NPV obtained in the scenario analysis different from the base case NPV?
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5. A board member is interested in the utilization breakeven of the Center. What are the breakeven values of the three input variables (Number of Procedures, Avg Revenue per Procedure and Bldg/Equip Salvage Value) that are highly uncertain? (Hint: you can change the values of these variables to see when NPV changes to zero or you can use What-if Analysis/Goal Seek) What management information is provided by the breakeven analysis?
6. Jules is aware that some qualitative factors are relevant to the surgery center decision.
a. What qualitative factors might support project acceptance?
b. What qualitative factors might preclude project acceptance?
c. Can you think of any costs that might be associated with the project that have not been included in the analysis?
d. Are there any potential benefits that have not been included?
e. What additional data would you seek from other hospital staff members to conduct a more thorough analysis?
7. Considering all points, would you build the ambulatory surgery center?
Note:
The What-If Analysis in Excel can be used to produce a table that shows the impact of inflation on the project’s NPV. Here are the steps:
– In cell H25, enter “=F25”
– In cells I25 to O25, enter 0%, 1%, 2%, 3%, 4%, 5% and 6%, respectively
– In cells H26 to H32, enter 0%, 1%, 2%, 3%, 4%, 5% and 6%, respectively
– Highlight cells H25 to O32
– Click on What-If Analysis and then Data Table
– Row Input Cell: D35
– Column Input Cell: D36
– Click OK
(Hint: Check to make sure that when column and row values are both 3%, it should give you the NPV value in Cell F25, which is the base case value. Also remember 1% = 0.01)