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Healthcare Financial Management and Economics
Week 10 Assignment — Capital Budgeting

There are many options to buy capital, including cash purchases, loans, leasing, and
other forms of payment. Your goal as a healthcare manager is to determine which
method is best for your organization, given its financial and organizational structure (i.e.,
for-profit or not-for-profit). Time value of money and net present value are two
techniques that may help you determine how and when to invest in new capital. For this
Assignment, you examine these concepts as they pertain to the healthcare industry.

To prepare for this Assignment:
Review this week’s Learning Resources. Reflect on concepts of time value of money,
net present value, internal rate of return, and purchasing options.

The Assignment:
Use the “Week 10 Assignment Capital Budget Excel Template” to show your work,
answer the following questions:

1. If a physician deposits $44,000 today into a mutual fund that is expected to grow
at an annual rate of 8%, what will be the value of this investment:

a. 3 years from now

b. 6 years from now

c. 9 years from now

d. 12 years from now

2. The Chief Financial Officer of a hospital needs to determine the present value of

$230,000 investment received at the end of year 5. What is the present value if
the discount rate is:

a. 3%

b. 6%

c. 9%

d. 12%

3. Ford Hospital plans to purchase a new MRI machine for 1.5 million. The
expected cash flows for each year of the five year period is

$330,000, $460,000, $495,000, $510,000, and $560,000 for the five years. What
is the internal rate of return or the IRR for the project?

4. Determine the Net Present Value for Problem 3 with an interest rate of 10%. Do
you proceed or not with the project?

5. Determine the Payback Period for Problem 3.