| Palms Hospital |
Memo
To:
From:
CC:
Date: [ 7/30/2010 ]
Re: Ambulatory Surgical Center
Executive Summary
The Palms Hospital is considering an expansion project that would utilize land previously purchased. By expanding into ambulatory surgical services, the hospital has the opportunity to increase revenues and capture market share in this area. Investigation in the NPV of the project and a scenario analysis reveal that the project would be profitable.
Debt Financing
This project will most likely involve debt financing. This means that interest expense would occur and should be taken into account in the analysis of the project. Interest expense is a cash expense and is automatically included when the net cash flows are …show more content…

The success of the ambulatory surgical center will be greatly impacted by the entry of another surgical center in the area.
Average Net Revenue Per Procedure Revenue Per Procedure | Revenue | NPV | NPV Change | IRR | IRR Change | $ 600.00 | $ (3,928,100) | $12,008 | -4.1% | | $ 700.00 | $ (2,727,320) | $1,200,780 | 0.4% | 4.5% | $ 800.00 | $ (1,526,540) | $1,200,780 | 4.7% | 4.3% | $ 900.00 | $ (325,760) | $1,200,780 | 8.9% | 4.2% | $ 1,000.00 | $ 875,020 | $1,200,780 | 12.9% | 4.0% | $ 1,100.00 | $ 2,075,800 | $1,200,780 | 16.8% | 3.9% | $ 1,200.00 | $ 3,276,580 | $1,200,780 | 20.7% | 3.9% | $ 1,300.00 | $ 4,477,360 | $1,200,780 | 24.4% | 3.7% | $ 1,400.00 | $ 5,678,140 | $1,200,780 | 28.1% | 3.7% |

The NPV increases $12,008 per dollar in revenue per procedure. For each $100 increase in revenue, the NPV will increase $1,200,780, so the value of the project will be greatly affected by the amount in revenues obtained by each procedure.
Estimated Salvage Value Estimated Salvage Value | Actual Value | NPV | NPV Change | IRR | IRR Change | $ 3,000,000 | $ 129,914 | $0.37 | 10.5% | | $ 4,000,000 | $ 502,467 | $372,553 | 11.7% | 1.2% | $ 5,000,000 | $ 875,020 | $372,553 |