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Health
System? What are potential reasons the board may not approve the project from a
nonfinancial standpoint?
2. What are the differences between nonprofit institutions and for-profit institutions? For
example, how would a for-profit hospital approach the LTAC decision?)
3. What is the average cost of capital of the for-profit hospitals provided in case Exhibit 3?
Would this serve as a reasonable discount rate to analyze a set of for-profit LTAC facility
cash flows? Should Fitzgerald use this number to discount the U.Va. LTAC facility’s
cash flows?
Average cost of capital of for-profit hospital
Assumptions made:
Risk-premium assumed at XXX%
Risk-free rate considered for XXX - Yr Treasury Bond
Tax rate assumed at XXX% to capture the XXXX
WACC has been computed for both XXXXX
Average WACC has been taken based on XXXXX
Some observations have been made
What has been considered in analysis is XXXX% as WACC as a base case
4. Using the information in the case and the memo from Karen Mulroney in case Exhibit 1,
complete the cash flow projections in the spreadsheet provided. What do you get for the
NPV and IRR of those cash flows? (25 minutes)
In absence of nil taxation.XXXXXXXXXXXXXXXXXXXXXXX NPV and IRR has also been calculated by taking into account
XXXXXXXXXXXXXXXXXXX
5. What are the main drivers for NPV and IRR? Show the impact on NPV and IRR by
changing a couple of these drivers to a downside scenario value. (10 minutes)