In-Class Cash Flow Estimation Exercise

Information to Solve Case

1) Assume Bloomington Indiana Mellencamp Health System, a not-for profit hospital, is evaluating a new MRI.

2) Cost

Purchase price $500,000

Shipping and Install $80,000

3) Expected life 5 years

4) Salvage Value $250,000

5) Utilization 6000 scans per year

6) Net Revenue $150 per scan

7) Variable Cost $75 per scan

8) Fixed cost $150,000

9) Corporate cost of capital 12%

Calculate the operating cash flow

Year 1 Year 2 Year 3 Year 4

Revenue

Fixed Costs

Variable Costs

Depreciation

BT operating income

Taxes

AT operating income

Depreciation

Net op. CF

Assume inflation is 2%