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1 ABC Healthcare Corporation Project Evaluation Crystal Leslie Assessment 2 Evaluation of Capital Projects June 7 th , 2024

2 Executive Summary Leadership has asked for an analysis of the three proposed capital projects based on forecasted cash flow. The forecasts of the projected cash flows are in the attached spreadsheets, titled Projected Cash Flows [XLSX]. Our company constraint only allows for one project to be chosen, so it has been asked to discover which would provide the most shareholder value for the company. Capital Budgeting Tools will be used to help determine this. Company Background ABC Healthcare Corporation is in the healthcare industry. “The healthcare sector consists of businesses that provide medical services, manufacture medical equipment or drugs, provide medical insurance, or otherwise facilitate the provision of healthcare to patients” (Healthcare sector: Industries defined and key statistics 2021). The founder and president of the company is Maria Gomez. Our biggest rival is HCA Healthcare Inc, which is headquartered in Tennessee. ABC Healthcare Corp owns a large amount of emergency and surgical centers, making sure lives are saved every day. We are there to make sure people stay healthy during critical times. We make sure to review financial information and market value, so we make sure we are helping as many people as possible. This review will allow us to know how we can maximize shareholder value, making things better for everyone involved. Capital Budgeting Tools “Capital budgeting is the process by which investors determine the value of a potential investment project” (Pinkasovitch, 2024). There are many different techniques used in Capital Budgeting. Some of these techniques include net present value, internal rate of return, profitability index, payback period, discounted payback period, modified internal rate of return, and real options analysis. The ones we will be analyzing today are Net Present Value, Payback period, Internal Rate of Return, and Profitability Index. NPV (Net Present Value): Net Present Value is called NPV for short. It calculates the net value of an investment over time. It uses all cash inflow and outflow. It also uses a discount rate, which accounts for the time value of money. This tool has two limitations, project size and discount rate assumption. Typically, if NPV is greater than zero we accept the project and if NPV is less than zero we reject the project. However, when we are comparing multiple projects than we look for which project has the highest NPV. If NPV is positive, it will add value to the company. The NPV helps us know if we would add more value than we could have with the discount rate elsewhere.

3 Payback period: The payback period is how long it takes to recover the initial investment, the shorter the better. A project is accepted if the payback period is less than or equal to the amount of years of the project and the desired payback period. The formula is dependent on if the cash flows are even or uneven. With even cash flows the formula is “Payback Period = Initial Investment / Net Cash Flow per period. If the cash flows are uneven you have: Payback Period = Years before full recovery + Unrecovered cost at the start of the year / Cash flow during the year” ( Payback period calculator 2024). IRR (Internal Rate of Return): The Internal Rate of Return is a discount rate that ends in a NPV of 0. It estimates the profitability of potential investments. The Internal Rate of Return is called IRR for short. If IRR is greater than the discount rate the project should be accepted. If the IRR is less than the discount rate than reject the project. You calculating the IRR by trying numbers until you find the correct one. With this tool, different size projects can be compared more accurately since it uses percentages. The problem with this tool is that if it is non- conventional than there may be more than one IRR, making it impossible to find. PI (Profitability Index): The Profitability Index is called PI for short. Constraints such as budget and number of engineers make it so all projects cannot be accepted. The formula is NPV divided by the upfront investment. It helps us understand the value of the project, what NPV we are getting per dollar. The highest option gives us the most. For PI to work two things must be true: all resources must be exhausted and there is a single resource constraint. Sometimes to make sure all resources are exhausted, more than one project can be accepted. Project A: Major Equipment Purchase The first project out of the three is Project A, a major equipment purchase. This project would be purchasing new equipment at the cost of ten million dollars. It is projected to reduce the cost of sales by 5% per year for eight years. It is predicted to be able to be sold for 500,000 dollars after the eight years. The required rate of return of the project is 8% and the equipment will be depreciated at a MACRS 7-year schedule. The marginal corporate tax rate is presumed to be 25%.The annual sales for all eight years is projected to be 20 million. Previously, the cost of sales has been 60%. Project B: Expansion into Three Additional States

4 The second potential project, Project B, is a project to expand into three more states. The expansion is predicted to increase sales/revenues and cost of sales by 10% per year for 5 years. Start-up costs are projected to be $7 million. The upfront needed investment in net working capital is $1 million, being recouped at the end of year five. The marginal corporate tax rate is presumed to be 25%. Finally, this is a more risky investment than Project A, so the required rate of return of the project is 12%. Project C: Marketing/Advertising Campaign The final project, Project C, is a six year long marketing/advertising campaign that will cost 2 million dollars per year. It is a moderate-risk investment so the rate of return for the project is 10%. It is expected that the campaign will increase sales and costs of sales by 15% per year. Finally, the marginal corporate tax rate is presumed to be 25%. Results from Project A: Due to the fact this is the only project out of the ones being considered that would have a physical item bought, this is the only project that we have a concern about depreciation for. To get the NPV the formula was used which is =NPV(required rate of return, cash flows years 1-8) + (Cash Flow for year 0). In this situation the rate of return was 8%. When the formula was entered, all of the information on the excel sheet applied. It gave us the result of a NPV of $44,262,269. With excel, the work is done for us so we do not need to keep guessing until the math matches our guess. The formula was inputted which is =IRR(Year 0-8 cash flows). The result was an IRR of 79.79%. The type of payback period that was used for this project was the discounted payback period. The formula fr this is: discounted payback period= years until break-even+ unrecovered amount/recovery year cash flow. In this case, we want a positive number so we used absolute value. The numbers used to calculate this was 1+absolute value of (-$2,892,750/$8,112,250). The result we got was 1.36. This means it would take between a year and a year and a half to payback. Finally, profitability index was calculated by the present value cash inflows by present value cash outflows. The result was 5.43.

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Homework i A company is considering three alternative investment projects with different net cash flows. The present value of net cash flows is calculated using Excel and the results follow. Potential Projects. Present value of net cash flows (excluding initial investment) Initial investment. Complete this question by entering your answers in the tabs below. Required A a. Compute the net present value of each project. b. If the company accepts all positive net present value projects, which of these will it accept? c. If the company can choose only one project, which will it choose on the basis of net present value? FI Compute the net present value of each project. Potential Projects Project A Present value of net cash flows Initial investment Net present value 2 Required B W F2 # Required C 3 APR 11 80 F3 $ 4 m tv 6 Project A $ 9,972 (10,000) 2 of 8 c F6 # & 7 Project B $ 10,697 (10,000) F7 Next > Y U il A 8 Project C $ 10,653 (10,000) FB DD ( F9 9 FU O

Nn1. Account

B Shaylee Corporation has $2.00 million to invest in new projects. The company's managers have presented a number of possible options that the board must prioritize. Information about the projects follows: Initial investment. Present value of future cash flows Project A $ 420,000 770,000 Required: 1. Is Shaylee able to invest in all of these projects simultaneously? 2-a. Calculate the profitability index for each project. 2-b. What is Shaylee's order of preference based on the profitability index? Complete this question by entering your answers in the tabs below. Project B $ 235,000 420,000 Req 1 Req 2A and 28 Is Shaylee able to invest in all of these projects simultaneously? Is Shaylee able to invest in all of these projects simultaneously? Reg 1 Req 2A and 2B > Project C $725,000 1,205,000 Project Di $950,000 1,565,000

Please answer subparts A, B & C

help please answer in text form with proper workings and explanation for each and every part and steps with concept and introduction no AI no copy paste remember answer must be in proper format with all working

Shaylee Corporation has $2.00 million to invest in new projects. The company's managers have presented a number of possible options that the board must prioritize. Information about the projects follows: Initial investment Present value of future cash flows Required: 1. Is Shaylee able to invest in all of these projects simultaneously? 2-a. Calculate the profitability index for each project. 2-b. What is Shaylee's order of preference based on the profitability index? Complete this question by entering your answers in the tabs below. Req 1 Project A $ 435,000 785,000 Req 2A and 2B Is Shaylee able to invest in all of these projects simultaneously? Is Shaylee able to invest in all of these projects simultaneously? Project C $ 740,000 1,220,000 Project D $ 965,000 1,580,000

Profitaility Index Please solve for the profitiability index and explain. The information is attached.

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Below are four cases that you will have to solve using Excel spreadsheets. 2nd case The COMPETIDORA SA company has the possibility of investing in three different projects . The projections show us the following information on which a decision must be made: PROJECT X Y Initial Z$310,000 It is requested: investment $180,000 $250,000 Year 1 cash flows $50,000 $80,000 $150,000 1. Determine the internal rate of return. 2. Determine the present value. Year 2 cash flows 3. Determine the recovery period. 4. Define which is the most viable project. $70,000 $80,000 $120,000 The discount rate for the project will be 9% and the investors propose a MARR of 22%. Year 3 cash flows $80,000 $80,000 $100,000 Year 4 cash flows $100,000 $80,000

4. Determining the optimal capital structure Understanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio 70% 60% 50% 40% 30% 30% 40% 50% 60% 70% Id Is WACC 7.00% 10.50% 8.61% 7.20% 10.80% 8.21% 7.70% 11.40% 8.01% 8.90% 12.20% 8.08% 10.30% 13.50% 8.38% Which capital structure shown in the preceding table is Transworld Consortium Corp.'s optimal capital structure? Debt ratio = 60% ; equity ratio = 40% Debt ratio = 30%; equity ratio = 70% O Debt ratio = 40%; equity ratio = 60% O Debt ratio = 70% ; equity ratio = 30% O Debt ratio = 50% ; equity ratio = 50%

Exercise 24-10 (Algo) Net present value, unequal cash flows, and profitability Index LO P3 Following is information on two alternative investment projects being conside return from its investments. (PV of $1, FV of $1. PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. y Tiger Company. The company requires a 4% Initial investment Project X1 $ (130,000) Project X2 $ (220,000) Net cash flows in: Year 1 Year 2 Year 3 50,000 97,500 60,500 87,500 85,500 77,500 a. Compute each project's net present value. b. Compute each project's profitability index. c. If the company can choose only one project, which should it choose on the basis of profitability index? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute each project's net present value. Note: Round your final answers to the nearest dollar. Net Cash Flowe Present Value of 1 at 4% Present Value of Net Cash…

Please show the solution in excel format :) thank you

1. Accounting Rate of Return on average investment of Project A (expressed to twodecimal places). 1.2 Net Present Value of both projects. 1.3 Internal Rate of Return of Project B (expressed to two decimal places) usinginterpolation

(question3 c,d) c) Calculate the profitability index (PI) for each project d) Calculate the internal rate of return (IRR) for each project.

Can you show me how this is done? Kepner Inc, is considering a capital investment project. that will provide annual cash flows of $31,248, requires an initial investment of $62,241, and the PV of cash flows is $106,796. What is the profitability index of the project? Round your answer 2 decimal places Selected Answer: 76 Correct Answer: 1.72 ± 0.01

Managerial Accounting (Please help ASAP. Solutions only. Rate will be given) ABC Corporation is considering the following three investment projects: Project P Project Q Project R Investment required 15,000 50,000 71,000 Present Value of Cash Inflows 15,150 54,500 75,970 The only cash outflows are the initial investements in the projects. a. Determine the Project Profitability Index of Project P? b. Determine the Project Profitability Index of Project Q? c. Determine the Project Profitability Index of Project R?

PLEASE SOLVE ALL SUBPARTS- USING FORMULA THANK YOU EVERTON Major graduated from Mona School of Business and has been a Junior Financial Analyst at Proven Investment Ltd. When he arrived at work this morning, he found the following memo in his e-mail. TO: EVERTON Major FROM: J. C. Bens, CFO, Proven Investment Ltd. RE: Capital Budgeting Analysis Provide an evaluation of the two proposed projects whose cash flow forecasts are found below: Product A Product B Initial cost $750,000 $650,000 Expected life 5 years 5 years Scrap value expected $ - $35,000 Others expected cash inflows: Year $…

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1. Is Shaylee able to invest in all of these projects simultaneously? 2-A. Calculate the profitability index for each project. 2-B. What is Shaylee’s order of preference based on the profitability index?

EX_1. A venture capitalist is considering investing in several projects. You have researched several possibilities for her and come up with the following cash flow estimates. Which investment should you recommend for the venture capitalist to choose? First-Year Growth Cost of Сaptal Initial Project Investment Cash Flow Rate Dating App $250,000 $5,000 4% 7% Green $350,000 $75,000 4% 8% Energy Water $400,000 $120,000 5% 8% Purification "Smart" Clothes $500,000 $125,000 8% 12%

Complete a,b,&c please

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