Problem 6 Problem 5 Problem 4 Problem 3 Problem 2 Problem 1 UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Probability NPV a. What are the project’s expected NPV and standard deviation of NPV? b. Should the base case analysis use the most likely NPV or expected NPV? Explain your answer. ANSWER PROBLEM 1 PROBLEM 2 PROBLEM 3 PROBLEM 4 PROBLEM 5 PROBLEM 6 Year Prob=0.2 Prob=0.6 cash flows are the expected cash flows in each year.) b. What are the project’s most likely, worst, and best case NPVs? c. Document Preview: Problem 6 Problem 5 Problem 4 Problem 3 Problem 2 Problem 1 UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Probability NPV a. What are the project’s expected NPV and standard deviation of NPV? b. Should the base case analysis use the most likely NPV or expected NPV? Explain your answer. ANSWER PROBLEM 1 PROBLEM 2 PROBLEM 3 PROBLEM 4 PROBLEM 5 PROBLEM 6 Year Prob=0.2 Prob=0.6 cash flows are the expected cash flows in each year.) b. What are the project’s most likely, worst, and best case NPVs? c. What is the project’s expected NPV on the basis of the scenario analysis? d. What is the project’s standard deviation of NPV? company’s policy is to adjust the corporate cost of capital up or down by 3 percentage points to account a. Perform a sensitivity analysis to see how NPV is affected by changes in the number of procedures per variables were number of procedures per day, average collection amount, and the equipment’s salvage Scenario Number of Procedures Average Collection Equipment Salvage Value Worst Most likely Best c. Finally, assume that California Health Center’s average project has a coefficient of variation of NPV in by the expected NPV.) The hospital adjusts for risk by adding or subtracting 3 percentage points to its hospital’s managers? The managers of United Medtronics are evaluating the following four projects for the coming budget Project Cost IRR A B C D a. What is the firm’s optimal capital budget? b. Now, suppose Medtronic’s managers want to consider differential risk in the capital budgeting process. Project A has average risk, B has below-average risk, C has above-average risk, and D has average managers lower the IRR of high-risk projects by 3 percentage points and raise the IRR of low-risk projects by the same amount.) Allied Managed Care Company is evaluating two different computer systems for handling provider claims. There are no incremental revenues attached…

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