Chapter 6, Problem 9QAP

Local Hospital (LH) has decided that it would like to send nurses to a local supermarket to provide a free health screening for interested supermarket customers. The screening will consist of measuring the individual’s blood pressure and taking a drop of blood, which will be immediately tested for several critical indicators. The director of public relations at the hospital believes that 100 people will take advantage of the screening each day. The plan is to provide the screening every day for one week; thus, a total of 700 screenings are expected. LH expects the supermarket to provide a $1,000 grant to help defray the costs of the program (since it will likely draw more customers to the store). LH anticipates the following expenses: Test Equipment Rental $500 For 1 week Nurses $50/hr Total of 10 hrs/day for 7 days Blood tests $1 Per individual tested Determine the special purpose budget for the program. Show revenues and expenses by line item, and show the expected profit or loss. If…

Dr. Whitley Avard, a plastic surgeon, had just returned from a conference in which she learned of a new surgical procedure for removing wrinkles around eyes, reducing the time to perform the normal procedure by 50%. Given her patient-load pressures, Dr. Avard is excited to try out the new technique. By decreasing the time spent on eye treatments or procedures, she can increase her total revenues by performing more services within a work period. In order to implement the new procedure, special equipment costing $74,000 is needed. The equipment has an expected life of 4 years, with a salvage value of $6,000. Dr. Avard estimates that her cash revenues will increase by the following amounts: Year Revenue Increases 1 $19,800 2   27,000 3   32,400 4   32,400     She also expects additional cash expenses amounting to $3,000 per year. The cost of capital is 12%. Assume that there are no income taxes. Required: 1.  Compute the payback period for the new equipment. Round your…

Dr. Claudia Gomez, a plastic surgeon, had just returned from a conference in which she learned of a new surgical procedure for removing wrinkles around eyes, reducing the time to perform the normal procedure by 50%. Given her patient-load pressures, Dr. Gomez is excited to try out the new technique. By decreasing the time spent on eye treatments or procedures, she can increase her total revenues by performing more services within a work period. In order to implement the new procedure, special equipment costing $88,800 is needed. The equipment has an expected life of 4 years, with a salvage value of $7,200. Dr. Gomez estimates that her cash revenues will increase by the following amounts: Year Revenue Increases 1. $23,760 2. $32,400 3. 38,880 4. 38,880   Conceptual Connection: Compute the NPV for the project, using 14% as the IRR.