Search for question

Donna Vickton is nurse manager for the Pulmonary unit at Cambridge Hospital. Donna has three large expenditure proposals for fiscal 2022. Each of the proposals has an initial cost of $2,000,000 but Donna understands that only one project of this magnitude can be done next year. She needs to determine which of the three capital budgeting projects to recommend to the Budget Committee. Donna was given a 7% discount rate on which to base her NPV calculations. All three projects are being evaluated over a 6 year horizon.

Evaluate these three projects and make a recommendation to the Budget Committee. Use a net present value approach to determine which project is the best option. The cash flows to consider for this exercise include the initial cost, the incremental revenue earned during the life of the project and the incremental expenses incurred over the project’s life. Show the Profitability Index calculation as part of your analysis. Lastly, if the discount rate were lowered to 6%, what significant change do you notice?

Fig: 1