Student Name:
	PROBLEM 1: Week 5 and Week 6 Capital Budgeting
	Assume that you are the CFO at Methodist Hospital in San Antonio. The CEO has asked you to
	analyze two proposed capital investments: Project X and Project Y. Each project requires a net
	investment outlay of $11,000, and the cost of capital for each project is 12 percent. The project's expected
	net cash flows are as follows:
		Year	Project X	Project Y
		0	-$11,000	-$11,000
		1	$7,000	$3,000
		2	$3,000	$3,000
		3	$3,000	$4,000
		4	$1,000	$4,000
	a. Calculate each project's payback period, net present value (NPV), and internal rate of return (IRR).
	b. Which project (or projects) is financially acceptable? Explain your answer.
	a. Complete the table below, solving for the project's cash flows, paybacks, NPVs (at 12 percent), and IRRs.
				Project X	Project X	Project Y	Project Y
				Annual	Cumulative	Annual	Cumulative
			Year	Cash Flow	Cash Flow	Cash Flow	Cash Flow
			0
			1
			2
			3
			4
			Payback
			NPV
			IRR
	b. Which project (or projects) is financially acceptable? Explain your answer.
	PROBLEM 2: Week 5 and Week 6 Capital Budgeting
	HCA is evaluating the bulk purchase of new Hill-Rom hospital beds for its Central & West Texas region. The purchase will cost $36,000,000 and the
	beds have an expected life of five years. The expected pretax salvage value after five years of use is $4,000,000. In total, the beds are expected to
	generate $9,000,000 in revenue in the first year of operations.
	Maintenance costs are expected to be $200,000 during the first year of operation, while the increase in utilities will cost another $100,000 across
	the system in Year 1. The cost for additional expendable supplies is expected to average $250,000 during the first year. All costs and revenues,
	except depreciation, are expected to increase at a 2.8% inflation rate after the first year. The hospital's aggregae tax rate is 21.15%, and its
	corporate cost of capital is 8.4%.
	The equipment falls into the MACRS five-year class for tax depreciation and hence is subject to the following depreciation allowances:
		Year	Allowance
		1	20%
		2	32%
		3	19%
		4	12%
		5	11%
		6	6%
	a. Estimate the project's net cash flows over its five-year estimated life.
	b. What are the project's NPV and IRR? (Assume that the project has average risk.)
	c. Based on the results of the analysis, should this project be approved?
	a. Complete the table below, solving for the project's net cash flows over its five-year estimated life.
					0	1	2	3	4	5
		Equipment cost		-$36,000,000
		Net revenues
		Less:	Maintenance costs
			Utilities costs
			Supplies
			Depreciation
		Operating income
		Taxes
		Net operating income
		Depreciation
		Plus: After-tax equipment salvage value*
		Net cash flow		-$36,000,000
	b. What are the project's NPV and IRR? (Assume that the project has average risk.)
	c. Based on the results of the analysis, should this project be approved?

Student Name:

PROBLEM 1: Proj Risk Analysis

Parallon Business Solutions, a division of HCA that provides revenue cycle functions, is evaluating two different

computer systems for handling provider claims. There are no incremental revenues attached to the projects,

so the decision will be made on the basis of the present value of costs. Parallon's corporate cost of capital is 10 percent.

Here are the net cash flow estimates in thousands of dollars:

Year

System X

System Y

0

-$1,300

-$1,100

1

$825

$750

2

$825

$750

3

$825

$750

a. Assume initially that the systems both have average risk. Which one should be chosen?

b. Assume that System Y is judged to have high risk. Parallon accounts for differential risk by adjusting its

corporate cost of capital up or down by 2 percentage points. Which system should be chosen?

PROBLEM 2: Proj Risk Analysis

Xenex Inc., a supplier of hospital room disinfection systems, has a cost of capital of 12 percent.

To fairly evaluate projects and adjust for risk, it adds or subtracts 2 percentage points to the discount rate.

Currently, two mutually exclusive projects are under consideration. Both have a cost of $200,000 and will last four years.

Neither project is projected to generate positive cash flows and thus both are evaluated on the basis of costs.

However, Project A is judged to be a riskier-than-average project but Project B is determined to a lower than average risk investment.

In which project should Xenex invest its capital?

Please, answer all the questions including the tables. Also, provide formulas and prove how you came out with answers. Thank you! Have a great day! God bless!