Problem
|
New Wing
|
Ambulatory Surgical Center
|
|
Construction and Equipping
|
Construction and Equipping
|
|
Total Cost ($ in millions)
|
$ 21.24
|
Total Cost ($ in millions)
|
$ 8.20
|
|
% down
|
25.0%
|
% down
|
20.00%
|
|
Years Financed
|
20
|
Years Financed
|
25
|
|
Fixed uunal Finance Rate
|
6.0%
|
Fixed Annual Finance Rate
|
6.00%
|
|
Monthly Loan Payment
|
$ 114,127
|
Monthly Loan Payment
|
$ 39,625
|
|
Months to Construct
|
12
|
Months to Construct
|
12
|
|
Revenue
|
Revenue
|
|
Number of New Beds
|
100
|
Revenue per Patient per Visit Y1
|
$ 1,700
|
|
Rev. per Occupied Bed Y1
|
$ 95,500
|
Avg. Patients Visits per month Y1
|
1,200
|
|
Avg. Occupancy Rate Y1
|
75.0%
|
Avg. Increase Visits per Month Beginning Y2
|
3.50%
|
|
Avg. Increase Occupancy Beginning Y2
|
4.1%
|
Avg. Increase Revenue per Visit Beginning Y2
|
2.40%
|
|
Avg. Increase Revenue per Occupied Bed Beginning Y2
|
2.5%
|
Operating Expense
|
|
Operating Expense
|
Fixed Total Fixed Cost per Mo. (Excluding Loan)
|
$ 22,700
|
|
Fixed Total Fixed Cost per Mo. (excluding Loan)
|
$ 85,900
|
Variable Cost per Visit per Mo.
|
$ 1,425
|
|
Variable Cost per Occupied Bed per Mo
|
$ 3,480
|
Annual Lease Cost of Land
|
$ 10,000
|
In addition, for both options, assume that:
1) The discount rate (opportunity cost of capital) is 5.5% per year.
2) The construction and equipping phase of both projects will occur throughout year 0 (Y0). Each project will take precisely 12 months to complete its construction and equipping phase so that they will see the first patients at the beginning of year 1 (Y1).
3) In both options, assume there is no patient care seasonality.
Task
Determine the NPV and IRR for the two options described. In each instance, the cash flow data should be at the annual level and extend for five years.