Case Study 1
1-Green Valley Medical Center is a nonprofit teaching hospital affiliated with a large state university and had grown since its foundation in the 1930s with continuous support from state revenues. Since it is a nonprofit organization its main goal is not to create profit for the investors, but to reach their institutional goals, which in this case is to offer good service for the region it is located in and to train the students that attend to the state university that the medical center is affiliated with.
2-The current capital budgeting process begins in each service area, where individuals submit their requests to the department head. Capital requests are classified in two different ways, what is …show more content…
For a discount rate of 3% for the Pet Proposal we get a NPV of $ 1 450 672.41 and for a discount rate of 10% we get a NPV of -$ 577 177.96. On the other hand for the Laundry proposal at 3% discount rate we get a NPV of $ 1 923 669.97 and for a discount rate of 10% we get a NPV of $ 853 701.64. b- For the IRR calculations we get that the PET scanner has an IRR of 7.63% and the Laundry has an IRR of 23%. c- Once you change the reimbursement rate of the PET proposal to 60%, the project gets much more attractive the NPV increases nine fold and the IRR increases. On the other even though the NPV of the laundry proposal plummeted by about half a million when we changed the savings from 15 years to 10 years it is still an attractive proposal.
Once the changes are implemented the PET project seems like a better option, it yields bigger positive cash flows than the laundry proposal, has a NPV that is about four times higher than the laundry’s NPV and now that the changes are implemented the IRRs are closer to each other. d- The assumption that PET scans are going to be reimbursed at a rate of 60% seems plausible in a future, but not now due to the fact that FDG is still waiting on the approval of the FDA and because at the time several of the large insurance companies were not covering part or all of the PET scan.
The process of approval for new drug that want to enter the market is about five, years. FDG is already being used in hospitals and