FNCE90060 - Calabash Community Hospital Case Study - Finance Assignment Help
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The objective of this case is to give students the opportunity to apply capital budgeting techniques discussed in class for estimating discounted cashflows and estimating Net Present Value. Read the case ”Calabash Community Hospital” (the case can be downloaded from the LMS). The case considers a potential $10 million investment in an outpatient ambulatory surgery center (ASC) by a not-for-profit community hospital in rural South Carolina in the United States. Before making a decision to proceed with the investment, a member of the purchasing department, R. D. Scott, is invited to complete a discounted cash flow (DCF) analysis of the investment opportunity to help quantify the financial costs and benefits of the project in this not-for-profit context. The analysis maintains substantial uncertainty regarding a number of key parameters. The main assumption in the case is that Calabash Community Hospital remains a not-for-profit organization, and is therefore exempt from paying corporate taxes. Question 2 below involves estimating the discounted cashflows where corporate taxes can be ignored. In Question 4 however, we consider the scenario where Calabash is a for-profit organization and therefore required to play corporate taxes. These two scenarios give students insights into the role played by taxes in the capital budgeting process.
1. a. What is the EAR for the loan that Calabash will use to fund the new ASC?
b. What is Calabash’s semiannual payment to the bank?
c. How much interest will Calabash have paid over the life of the loan?
d. How will interest payments impact the NPV estimates for the new ASC?
2. a. Create a Discounted Cashflow analysis table showing the ASC‘s unlevered net income and free cash flows for the years 2021-2030. Use the base case assumptions agreed by the team in the case. Show clearly how each row or value in the DCF table is derived from the data in the case.
b. Using CFO Emily Tang’s estimate of the discount rate, find the NPV of the investment. According to the NPV rule, should Calabash proceed with the new ASC?
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