Problem:
Pinehill Medical Associates (PMA) wants to expand. The medical group can acquire an open former medical facility nearby for $150,000 and will need an additional $50,000 for renovations with a total mortgage of $200,000. The payment will be $1050 per month for 30 years. Another option is to build a new facility for $250,000 and with monthly mortgage payments of $1100. The discount rate for both projects is 10%. The cost of capital is 15%. The projected income over the next five years:
|
|
Option 1
|
Option 2
|
|
Y0
|
-200,000
|
-250,000
|
|
Y1
|
15,000
|
15,000
|
|
Y2
|
75,000
|
75,000
|
|
Y3
|
100,000
|
100,000
|
|
Y4
|
150,000
|
150,000
|
• Determine which scenario would be the best option for the group over the next five years in terms of Internal Rate of Return (IRR)
• Write an interpretation of your findings and submit as a WORD document.