Question 2 ### Project Analysis for Medtronic Inc.**Overview:**Medtronic Inc. has the opportunity to supply medical devices to Memorial Hermann, a private hospital in the U.S. The payment structure from Memorial Hermann is as follows:- **Upfront Payment:** $4 million upon contract signing- **Year 1 Payment:** $3 million- **Year 2 Payment:** $1.5 million- **Year 3 Payment:** $7.5 million**Medtronic's Investment:**- Loan from Bank of America Merrill Lynch before receiving the initial payment- Invest $2 million upfront**Expenditures Over Five Years:**- **Year 1:** $3.5 million- **Year 2:** $10 million- **Year 3:** $1.5 million- **Year 4:** $4 million- **Year 5:** $3 millionMemorial Hermann will receive the devices in Year 4, paying $4.25 million at the end of that year and the remaining $4.5 million at the end of Year 5.**Economic Analysis Objective:**Evaluate the prospective return on investment versus the Minimum Attractive Rate of Return (MARR). This analysis will help determine whether Medtronic can sustain its current staff levels or needs to consider downsizing after the five-year term.**Tasks for the Project Management Team:**1. **Table Generation:** Create a table illustrating the project’s cash flow estimates.2. **Cash Flow Diagram:** Construct a diagram to visually represent cash flow estimates.3. **Rate of Return Analysis:** Assess the number of rate of return values for the project.4. **Value Calculation:** Use Microsoft Excel to determine the rate of return. Plot present worth against a rate of return percentage range (0% to 100%, increasing by 5%).5. **IRR Evaluation:** Calculate the Internal Rate of Return (IRR) for a zero net present worth scenario using Excel.6. **MARR Consideration:** Medtronic's MARR is set at 15%. Advice must be provided regarding project commencement, considering the 14% reinvestment rate from payments received and a 7% loan interest rate from Bank of America Merrill Lynch for medical device production.The success of this project will influence company decisions on cost management strategies, including staff size and potential plant closures.

Cash Flow The net amount of cash and cash equivalents being transferred in and out of a corporation…

Medtronic Inc. has an opportunity to supply medical devices to Memorial Hermann, a private 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 year. Medtronic 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: 1. Generate a table depicting the cash flow estimates for the Project 2. Draw the cash flow diagram for the cash flow estimates 3. Determine the number of rates of return values this project is likely to have. 4. Obtain the values for the rate of return using Microsoft Excel (Spreadsheet). These values should be obtain by plotting the Present worth against the range of rate of return values (0 % to 100 %, step increase of 5 %) 5. Evaluate the Internal Rate of Return (IRR) for the zero net present worth using Microsoft Excel Spreadsheet. 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 %.