The Board of Trustees has decided that we should attempt to expand our service offering. They want you to evaluate the information below and determine if this is a project we should move forward with. If your submission is not in Excel, you will earn a zero for this assignment.
The MRI Trailer costs $600,000 and has an expected life of 5 years with an estimated salvage value of $200,000 at that time. After some extensive research, the numbers we have come up with look like this:
15 tests per day for 250 days per year for each year of the projects life
Each procedure is expected to generate $80 in cash collections during the first year of use (Net revenue for year 1 is 15*250*80=$300,000)
Labor and Maintenance costs are expected to be $100,000 during the first year
Utilities will cost $10,000 in year one and there is an incremental overhead increase of $5,000 beginning in year one
Cost for expendable supplies is expected to be $5 per procedure
Costs and revenues are expected to increase at a 5% inflation rate
Our corporate cost of capital is 10%
In the Excel spreadsheet template:
estimate the project's net cash flow over the 5 year estimated life. I want you to use the properties (formulas) in Excel here.
determine the project's NPV and IRR (Use the excel formulas to determine this as well)
Is this a project we should move forward with? (Consider NPV and strategic value here)---This can be written in text into your excel sheet.
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MRI Trailer Purchase
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Year
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0
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1
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2
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3
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4
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5
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Equipment Cost
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Net Revenues
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Less: Labor/Maintenance Costs
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Utilities Costs
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Supplies
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Incremental Overhead
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Operating Income
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Equipment Salvage Value
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Net Cash Flow
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Net Present Value (NPV)
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Internal Rate of Return (IRR)
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