Answer and explain 6. Medtronic management have set a MARR of 15% for any of their project; will you adviseMedtronic to embark on this project knowing the net positive cash flow received from MemorialHermann is reinvested at 14%. The loan Medtronic obtained from Bank of America MerrillLynch for the production of the medical devices is borrowed at a rate of 7 %. Medtronic Inc. has an opportunity to supply medical devices to Memorial Hermann, a prívate hospital inthe United States. Memorial Hermann will pay $4 million upfront i.e. when the contract is signed and $3million for the first year, $1.5 million for the second year and $7.5 million for the thirdhad obtained loan from Bank of America Merrill Lynch (an investment bank) prior to the initial paymentfrom Hermann and invest $2 million from it at the beginning of the project. Subsequently, Medtronicspend $3.5 million, $10 million, $1.5 million, 4 million, and $3 million as running cost for the first,second, third, fourth and fifth year respectively. Memorial Hermann will take delivery of the medicaldevices during year 4, and agrees to pay $4.25 million at the end of that year and the $ 4.5 million balanceat the end of year 5. The outcome of the rate of return on this investment as compare with the minimumattractive rate of return (MARR) will determine if Medtronic will continue to sustain their current staffstrength or they will cede to the option of downsizing after the completion of the 5 year deal. Medtronicmanagement request her project management team to conduct an economic analysis on the proposedventure (project) so that they can be better informed on policy formulation in readiness for any exigencythat may result from the project. These exigencies include but not limited to staff downsizing, staffretainment, salary freezing, and salary cut or closing down some of their plants since they aremultinational company. The project management team is planning to approach the task as follows:year.Medtronic

Capital Budgeting techniques: Capital budgeting techniques refer to a collection of tools managers…

6. Medtronic management have set a MARR of 15% for any of their project; will you advise Medtronic to embark on this project knowing the net positive cash flow received from Memorial Hermann is reinvested at 14%. The loan Medtronic obtained from Bank of America Merrill Lynch for the production of the medical devices is borrowed at a rate of 7 %.

6. Medtronic management have set a MARR of 15% for any of their project; will you advise Medtronic to embark on this project knowing the net positive cash flow received from Memorial Hermann is reinvested at 14%. The loan Medtronic obtained from Bank of America Merrill Lynch for the production of the medical devices is borrowed at a rate of 7 %.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 9P

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