Financial Homework Assignment

timer Asked: Feb 7th, 2016

Question description

University of Detroit Mercy

HSA 5020

Winter 2016

Second Graded Homework Assignment

25 Points

This assignment requires calculations therefore it is required to be submitted in Excel with all calculations performed in Excel. The material covered in this exercise is from chapter 9 and 14.

In this assignment will require you to calculate Future Values (FV), Present Values (PV), Net Present Values (NPV) and Internal Rates of Return (IRR).

In addition please include a heading to your Excel file that includes: 1) Organization/entity/class identification 2) Description of the document 3) Date. (One point)

  1. You want to retire in 25 years with $1,000,000 in your retirement account. How much do you need to put into an investment account today that earns 8% annually so that you have $1,000,000 in in 25 years? (Three points)

  2. You have just inherited $25,000. Instead of spending it you decide to save it and give it to your nephew when they turn 21 years old. They are 5 years old today. How much will the nephew receive when they turn 21 assuming a 6% annual interest rate? (Three points)

  3. ABC Home Care rents a copy machine of $250 per month. You find that you can purchase the same model copy machine for $3,600 but will have to pay $100 to maintain the machine. Calculate the payback period. (Two points)

  4. You operate a surgery center in in Franklin. One of the surgeons suggestions that the foot surgery be added a service offered. After investigation you make the following estimates of what it would take to establish podiatric surgery as a services at the surgery center:

    • New equipment for these procedures $80,000

    • The surgeon will do 7 procedures a month

    • You can charge $1,500 per procedure and insurance will pay $1,000 per procedure

    • Supplies for each procedure cost $400

    • For each procedure additional staff will be required at a cost of $250 per procedure

    • The equipment has a 4 year useful life

    • The surgery center uses a 12% discount rate

    • Expenses are expected to increase 3% each year and insurance payments are expected to increase 1% each year.

      Build a cash flow projection for each year of the 4 years (like we did in class – see example on page 507 of the textbook). (Six points)

      Once you have the cash flow analysis built calculate the NPV and IRR. Should the surgery center add foot surgery as a service? Why or why not? (Five points)

      Based on discussions with the staff you have determined that the only way to staff these procedures is to pay the staff overtime so the staff pay is increased by 50%. Recalculate the NPV and IRR. Does this change your response to if the foot procedures should be added as a service to the surgery center? (Five points)

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