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Pensacola Surgery Center Case Study Essay

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Pensacola Surgery Center
Time Value Analysis
A Case Study in Healthcare Finance
Catherine Grace Bautista

1. Consider the $50,000 excess cash. Assume that Gary invests the funds in one-year CD.

a. What is the CD’s value at maturity (future value) if it pays 10 percent annual interest?

FV = PV x (1+i)n
FV = 50,000 x (1+10%)1
FV = 50,000 x 1.10
FV = $55,000 at maturity after a year

b. What will its future value be if the CD pays 5 percent interest? If it pays 15 percent interest?

@ 5% per annum

FV = PV x (1+i)n
FV = 50,000 x (1+5%)1
FV = 50,000 x 1.05
FV = 52,500 at maturity after a year

@15% per annum

FV = PV x (1+i)n
FV = 50,000 x (1+15%)1
FV = 50,000 x 1.15
FV = 57,500 at maturity after a year

c. BankSouth offers CDs with 10 …show more content…

What annual interest rate is needed to produce $200,000 after five years if only $100,000 is invested? R=14.87% FV = PV x (1 + i)n $200,000 = $100,000 x (1 + .1487)5 $200,000 = $100,000 x 2.0000 FV $200,000 = $200,000

4. Now consider a second alternative for accumulating funds to buy the new billing system. In lieu of a lump sum investment, assume that five annual payments of $32,000 are made at the end of each year.

a. What type of annuity is this?

This would be considered an ordinary annuity. An ordinary annuity is defined as a series of equal payments made at the end of each period over a fixed amount of time. Payments in an annuity can be made as frequently as every week. However, in practice ordinary annuity payments are made monthly, quarterly, semiannually, or annually. An example of an ordinary annuity would be straight bond coupon payments.

b. What is the present value of this annuity if the opportunity cost rate is 10% annually? 10% compounded semiannually?

10 percent

Year Amount PV formula PV factor
1 $32,000 1 /(1+.10)1 0.9091
2 $32,000 1 /(1+.10)2 0.8264
3 $32,000 1 /(1+.10)3 0.7513
4 $32,000 1 /(1+.10)4 0.6830
5 $32,000 1 /(1+.10)5 0.6209 3.7908

PV = $32,000 x 3.7908 = $121,305 (annually)

10.25 percent

Year

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