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.
|MRI Trailer Purchase||Year|
|Less: Labor/Maintenance Costs|
|Equipment Salvage Value|
|Net Cash Flow|
|Net Present Value (NPV)|
|Internal Rate of Return (IRR)|