Medtronic Inc. has an opportunity to supply medical devices to Memorial Hermann, a prívate hospital in the United States. Memorial Hermann will pay $4 million upfront i.e. when the contract is signed and $3 million for the first year, $1.5 million for the second year and $7.5 million for the third had obtained loan from Bank of America Merrill Lynch (an investment bank) prior to the initial from Hermann and invest $2 million from it at the beginning of the project. Subsequently, Medtronic spend $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 medical devices during year 4, and agrees to pay $4.25 million at the end of that year and the $ 4.5 million balance at the end of year 5. The outcome of the rate of return on this investment as compare with the minimum attractive rate of return (MARR) will determine if Medtronic will continue to sustain their current staff strength or they will cede to the option of downsizing after the completion of the 5 year deal. Medtronic management request her project management team to conduct an economic analysis on the proposed venture (project) so that they can be better informed on policy formulation in readiness for any exigency that may result from the project. These exigencies include but not limited to staff downsizing, staff retainment, salary freezing, and salary cut or closing down some of their plants since they are multinational company. The project management team is planning to approach the task as follows: year. Medtronic payment 1. Generate a table depicting the cash flow estimates for the Project 2. Draw the cash flow diagram for the cash flow estimates 3. Determine the number of rates of return values this project is likely to have. Obtain the values for the rate of return using Microsoft Excel (Spreadsheet). These values should be obtain by plotting the Present worth against the range of rate of return values (0 % to 100 4. %, step increase of 5 %) 5. Evaluate the Internal Rate of Return (IRR) for the zero net present worth using Microsoft Excel Spreadsheet. 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 %.

Medtronic Inc. has an opportunity to supply medical devices to Memorial Hermann, a prívate hospital in the United States. Memorial Hermann will pay $4 million upfront i.e. when the contract is signed and $3 million for the first year, $1.5 million for the second year and $7.5 million for the third had obtained loan from Bank of America Merrill Lynch (an investment bank) prior to the initial from Hermann and invest $2 million from it at the beginning of the project. Subsequently, Medtronic spend $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 medical devices during year 4, and agrees to pay $4.25 million at the end of that year and the $ 4.5 million balance at the end of year 5. The outcome of the rate of return on this investment as compare with the minimum attractive rate of return (MARR) will determine if Medtronic will continue to sustain their current staff strength or they will cede to the option of downsizing after the completion of the 5 year deal. Medtronic management request her project management team to conduct an economic analysis on the proposed venture (project) so that they can be better informed on policy formulation in readiness for any exigency that may result from the project. These exigencies include but not limited to staff downsizing, staff retainment, salary freezing, and salary cut or closing down some of their plants since they are multinational company. The project management team is planning to approach the task as follows: year. Medtronic payment 1. Generate a table depicting the cash flow estimates for the Project 2. Draw the cash flow diagram for the cash flow estimates 3. Determine the number of rates of return values this project is likely to have. Obtain the values for the rate of return using Microsoft Excel (Spreadsheet). These values should be obtain by plotting the Present worth against the range of rate of return values (0 % to 100 4. %, step increase of 5 %) 5. Evaluate the Internal Rate of Return (IRR) for the zero net present worth using Microsoft Excel Spreadsheet. 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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