6. Medtronic management have set a MARR of 15% for any of their project; will you advise Medtronic to embark on this project knowing the net positive cash flow received from Memorial Hermann is reinvested at 14%. The loan Medtronic obtained from Bank of America Merrill Lynch for the production of the medical devices is borrowed at a rate of 7 %.
6. Medtronic management have set a MARR of 15% for any of their project; will you advise Medtronic to embark on this project knowing the net positive cash flow received from Memorial Hermann is reinvested at 14%. The loan Medtronic obtained from Bank of America Merrill Lynch for the production of the medical devices is borrowed at a rate of 7 %.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:6. Medtronic management have set a MARR of 15% for any of their project; will you advise
Medtronic to embark on this project knowing the net positive cash flow received from Memorial
Hermann is reinvested at 14%. The loan Medtronic obtained from Bank of America Merrill
Lynch for the production of the medical devices is borrowed at a rate of 7 %.
Transcribed Image Text:Medtronic Inc. has an opportunity to supply medical devices to Memorial Hermann, a prívate hospital in
the United States. Memorial Hermann will pay $4 million upfront i.e. when the contract is signed and $3
million for the first year, $1.5 million for the second year and $7.5 million for the third
had obtained loan from Bank of America Merrill Lynch (an investment bank) prior to the initial payment
from Hermann and invest $2 million from it at the beginning of the project. Subsequently, Medtronic
spend $3.5 million, $10 million, $1.5 million, 4 million, and $3 million as running cost for the first,
second, third, fourth and fifth year respectively. Memorial Hermann will take delivery of the medical
devices during year 4, and agrees to pay $4.25 million at the end of that year and the $ 4.5 million balance
at the end of year 5. The outcome of the rate of return on this investment as compare with the minimum
attractive rate of return (MARR) will determine if Medtronic will continue to sustain their current staff
strength or they will cede to the option of downsizing after the completion of the 5 year deal. Medtronic
management request her project management team to conduct an economic analysis on the proposed
venture (project) so that they can be better informed on policy formulation in readiness for any exigency
that may result from the project. These exigencies include but not limited to staff downsizing, staff
retainment, salary freezing, and salary cut or closing down some of their plants since they are
multinational company. The project management team is planning to approach the task as follows:
year.
Medtronic
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