UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 4 - Time Value Analysis OU AONH PROBLEM 5 Consider another uneven cash flow stream: Year Cash Flow 9 $2,000 PV 10 $2,000 11 $0 12 $1,500 13 A $2,500 14 5 $4,000 = $1 15 16 a. What is the present (Year 0) value of the cash flow stream if the opportunity cost rate is 10 percent? 17 b. What is the value of the cash flow stream at the end of Year 5 if the cash flows are invested in an 18 account that pays 10 percent annually? 19 c. What cash flow today (Year 0), in lieu of the $2,000 cash flow, would be needed to accumulate $20,000 + 20 at the end of Year 5? (Assume that the cash flows for Years 1 through 5 remain the same.) 146% 21 d. Time value analysis involves either discounting or compounding cash flows. Many healthcare financial 22 management decisions-such as bond refunding, capital investment, and lease versus buy-involve 23 discounting projected future cash flows. What factors must executives consider when choosing a 24 discount rate to apply to forecasted cash flows? 25 FV 26 ANSWER 27