Homework: Purchase Evaluation
You are the financial manager for a healthcare organization that is considering the purchase of a building costing $3,000,000. The resale value would be $4,000,000 in 5 years when the organization expects to move into a wing of a new hospital that is being built. You will consider the financial impact of several scenarios.
The owners of the organization are concerned about the following:
i. The business needs to decide whether the future value of the projected purchase outweighs the interest they could earn on a CD that matures in 5 years.
ii. What happens if they earn some rent on part of the building?
You will make a recommendation to the company as to whether they should purchase the building now and whether they should seek a tenant for some of the offices.
I. If the interest rate is 8%, what is the present value of the sales price?
II. Is the property investment attractive to you?
III. (i) What is the present value of the future cash flows, if you also could earn $300,000 per year rent on the property? The rent is paid at the end of each year.
(ii) Is the property investment attractive to you now?
IV. Alternatively, the organization has a choice of remaining in the building it is in now and investing the money in a Certificate of Deposit at one of two different banks. First National Bank pays 4.2% interest compounded semiannually. Second National Bank pays 4% interest compounded monthly. First you will need to calculate the annual rate for both banks and then determine the future value of the CDs.
In your presentation, be sure to highlight how you considered the time value of money as one of your considerations. If your calculations are contradictory, discuss how you came to your decision. Explain whether there are any other issues you would consider.
Construct a PowerPoint presentation meeting the following structural requirements. In addition to the slide presentation, submit the Excel spreadsheet with your calculations. Your presentation must:
i. Be organized, using professional themes and transitions in addressing the evaluation of the purchase.
ii. Consist of four slides, not including the title and reference slides (six total slides).
iii. Provide in each slide detailed speakers notes-a minimum of 100 words in length. Notes must draw from, and cite, relevant reference materials.
Format your homework according to the following formatting requirements:
i) The answer should be typed, using Times New Roman font (size 12), double spaced, with one-inch margins on all sides.
ii) The response also includes a cover page containing the title of the homework, the student's name, the course title, and the date. The cover page is not included in the required page length.
iii) Also include a reference page. The Citations and references must follow APA format. The reference page is not included in the required page length.