The essence of management is to make decisions, and to that extent, a health care manager must have a working knowledge on how to calculate time value money (TVM) financial problems.
Scenario
As a health care manager at a hospital, your supervisor has asked you to submit a set of financial calculations needed for the new capital projects of purchasing an MRI and deciding whether to expand the emergency room or to renovate the hospital lobby.
Preparation
Access Excel for Corporate Finance Professionals located in the Week 3 Learning Activities folder and watch it. Specifically, “NPV Tests in Excel” and “NPV and Scenario Analysis” in Lesson 2, “Project Selection in Excel,” may be helpful for understanding this assignment
Assignment Deliverable
Complete all sets and parts of the Financial Exercises worksheet. The file contains the following 5 worksheet tabs:
- Wk 3: Set 1, Part 1
- Wk 3: Set 1, Part 2
- Wk 3: Set 2, Part 1
- Wk 3: Set 2, Part 2
- Wk 3: Set 2, Part 3
Submit your assignment.
Assignment Support
- Access and watch the following videos in the Week 3 section on the HCS/385 Video Lectures Home Page for examples of different formulas used to calculate in Microsoft Excel:
- “Present Value Problems #1–3”
- “Future Value Problems #1–2”
- “Net Present Value Problems #1–3”
- “Internal Rate of Return Problems #1–3”
- “Break-Even Point Problems #1–3”
Index
| Workbook Index: Click on the following links or on each of the tabs below to access the 5 calculation pages. Complete all sections on each page using the instructions in the A1 cell. |
| Wk 3 – Set 1, Part 1 |
| Wk 3 – Set 1, Part 2 |
| Wk 3 – Set 2, Part 1 |
| Wk 3 – Set 2, Part 2 |
| Wk 3 – Set 2, Part 3 |
Wk 3 – Set 1, Part 1
| Tab 1 of 5: Complete the following 7 Wk 3 Financial Exercises: Table 1: Set 1, Part 1 Questions in A5 through B13 using either the financial functions in Excel or the present value (PV) formula shown in A2 and future value (FV) formula shown in A3. | |
| Present value formula: PV = FV * 1 / (1+i)^n | |
| Future value formula: FV = PV * (1+i)^n | |
| Table 1: Set 1, Part 1 Questions | |
| Question | Answer |
| 1. If you want to have $60,000 in 8 years, how much do you need to deposit in the bank today if the account pays an interest rate of 9%? | Insert your answer. |
| 2. What will $110,000 grow to be in 9 years if it is invested today at 11%? | Insert your answer. |
| 3. You would like to have $200,000 in a college fund in 15 years. How much do you need today if you expect to earn 12% while you are investing to pay for your child’s college? | Insert your answer. |
| 4. You have been offered $3,000 in 4 years for providing $2,000 today into a business venture with a friend. If interest rates are 10%, is this a good investment for you? | Insert your answer. |
| 5. What will $82,000 grow to be in 11 years if it is invested today at 8% and the interest rate is compounded monthly? | Insert your answer. |
| 6. How many years will it take for $136,000 to grow to $468,000 if it is invested in an account with an annual interest rate of 8%? | Insert your answer. |
| 7. At what interest rate must $112,000 be invested so that it will be worth $392,000 in 14 years? | Insert your answer. |
&"Arial,Regular"&10 Wk 2 Financial Exercises – Part 1 HCS/385 v4 Page &P of &N
&"Arial,Regular"&10HCS/385 v4
&"Arial,Regular"&8Copyright© 2020 by University of Phoenix. All rights reserved.
&"Arial,Regular"&8Copyright© 2020 by University of Phoenix. All rights reserved.
Wk 3 – Set 1, Part 2
| Tab 2 of 5: Complete the following 6 Wk 3 Financial Exercises: Set 1, Part 2 problems. | ||||||||
| 1. Calculate the net present value (NPV) in A4 of the following cash flow stream shown in A5 through G6 if the required rate is 12%. | ||||||||
| Insert your NPV calculation. | ||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | ||
| Cash Flow | (230,000) | 60,000 | 60,000 | 60,000 | 60,000 | 60,000 | ||
| Is this a good project for the business to accept? Explain why or why not in A8. | ||||||||
| Insert your answer. | ||||||||
| 2. Calculate the NPV in A11 of the following cash flow projections shown in A12 through G13 based on a required rate of 10.5%. | ||||||||
| Insert your NPV calculation. | ||||||||
| Year | 0 | 1 | 2 | 3 | 4 | |||
| Cash Flow | (120,000) | 35,000 | 47,500 | 55,000 | 62,000 | |||
| Is this a good project for the business to accept? Explain why or why not in A15. | ||||||||
| Insert your answer. | ||||||||
| 3. A company needs to decide if it will move forward with 2 new projects that it is evaluating. Project A's cash flow projections are shown in A19 through F20, and Project B's projections are shown in A22 through G23. | ||||||||
| Project A | ||||||||
| Year | 0 | 1 | 2 | 3 | 4 | |||
| Cash Flow | -800,000 | 220,000 | 265,000 | 292,000 | 317,000 | |||
| Project B | ||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | ||
| Cash Flow | -650,000 | 175,000 | 175,000 | 175,000 | 175,000 | 175,000 | ||
| Based on the risk of each project, the company has a required rate of return of 11% for Project A and 11.5% for Project B. The company has a $1.5 million budget to spend on new projects for the year. Should the company move forward with one, both, or neither of the two new projects? Indicate your answer in A25 and show your work to support your answer. | ||||||||
| Insert your answer. | ||||||||
| 4. Calculate the internal rate of return (IRR) in A30 of the following cash flows shown in A28 through I29. | ||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| Cash Flow | (1,650,000) | 330,000 | 365,000 | 380,000 | 415,000 | 405,000 | 370000 | 294,000 |
| Insert your answer. | ||||||||
| 5. If a company has a required rate of return of 15%, should the following project be accepted based on these expected cash flows shown in A33 through H34? | ||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | |
| Cash Flow | (274,000) | 68,000 | 73,000 | 76,500 | 78,000 | 82,500 | 77,000 | |
| Explain why the company should or should not move forward with this endeavor in A36. | ||||||||
| Insert your answer. | ||||||||
| 6. Based on the investor expectations of earning at least 12%, should this project show in A39 through H40 be completed? | ||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | |
| Cash Flow | (133,000) | 37,000 | 42,750 | 44,000 | 46,500 | 82,500 | 77,000 | |
| Explain why or why not the company should move forward with this endeavor in A42. | ||||||||
| Insert your answer. |
&"Arial,Regular"&10Wk 2 Financial Exercises – Part 2 HCS/385 v4 Page &P of &N
&"Arial,Regular"&10HCS/385 v4
&"Arial,Regular"&8Copyright© 2020 by University of Phoenix. All rights reserved.
&"Arial,Regular"&8Copyright© 2020 by University of Phoenix. All rights reserved.
Wk 3 – Set 2, Part 1
| Tab 3 of 5: Describe the 5 types of budgets listed in A5 through A9 for these Wk 3 Financial Exercises: Table 1: Set 2, Part 1 Descriptions. In your descriptions in B5 through B9, include the budget's objective, how the budget assists an organization in managing its financial activities, and what types of data need to be included in that specific budget. | |
| Table 1: Set 2, Part 1 Descriptions | |
| Type of Budget | Description |
| Cash Flow | Insert cash flow description. |
| Operating | Insert operating description. |
| Sales | Insert sales description. |
| Static | Insert static description. |
| Financial | Insert financial description. |
Wk 3 – Set 2, Part 2
| Tab 4 of 5: Complete the following 3 Wk 3 Financial Exercises: Table 1: Set 2, Part 2 Questions in A11 through B15 using the ratios in A2 through A5. | |
| Sales level at which operating income is zero: If sales above breakeven, then profit; if sales below break even, then loss; fixed expenses = total contribution margin. | |
| Total sales = total expenses | |
| Break Even Point: Unit Sold = Fixed expenses + Operating Income / Contribution Margin per unit | |
| Break Even Point: Sales $ = Fixed expenses + Operating Income / Contribution Margin Ratio | |
| Table 1: Set 2, Part 2 Questions | |
| Problem | Answer |
| 1. Calculate the break even number of units if the fixed expenses are $7,000 and the contribution margin is $14/unit. | Insert your answer. |
| 2. Calculate the break even sales dollars if the fixed expenses are $7,000 and the contribution ratio is 40%. | Insert your answer. |
| 3. Calculate the break even number of units with a target profit of $120,000 if the fixed expenses are $15,000 and the contribution margin is $60/unit. | Insert your answer. |
Wk 3 – Set 2, Part 3
| Tab 5 of 5: Complete the following 5 Wk 3 Financial Exercises: Set 2, Part 3 Questions in A3 through B9. | |
| Table 1: Set 2, Part 3 Questions | |
| Problem | Answer |
| 1. How much will you have saved after 6 years by contributing $1,200 at the end of each year if you expect to earn 11% on the investment? | Insert your answer. |
| 2. A business owner plans to deposit their annual profits in an investment account earning a 9% annual return. If the owner starts with their first deposit today for $22,000 and expects to make the same profit for the next 7 years, how much will be saved for retirement at that point? | Insert your answer. |
| 3. An investor plans to invest $500/year and expects to get a 10.5% return. If the investor makes these contributions at the end of the next 20 years, what is the present value (PV) of this investment today? | Insert your answer. |
| 4. What is the PV of a 12-year lease arrangement with an interest rate of 7.5% that requires annual payments of $4,250/year with the first payment due now? | Insert your answer. |
| 5. A recent college graduate hopes to have $200,000 saved in their retirement account 25 years from now by contributing $150/month in a 401(k) plan. The goal is to earn 10% annually on the monthly contribution. Will they have the $200,000 at the end of the 25 years? | Insert your answer. |
