Problem 3
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 12 -- Project Risk Analysis
PROBLEM 3
Consider the project contained in Problem 7 in Chapter 11 (California Health Center).
a. Perform a sensitivity analysis to see how NPV is affected by changes in the number of procedures pe
day, average collection amount, and salvage value. Remember supplies vary with number of procedures.
b. Conduct a scenario analysis. Suppose that the hospital's staff concluded that the three most uncertain
variables were number of procedures per day, average collection amount, and the equipment's salvage
value. Furthermore, the following data were developed:
Equipment
Number of Average Salvage
Scenario Probability Procedures Collection Value
Worst 0.25 10 $60 $100,000
Most likely 0.50 15 $80 $200,000
Best 0.25 20 $100 $300,000
c. Finally, assume that California Health Center's average project has a coefficient of variation of NPV in
the range of XXXXXXXXXXHint: Coefficient of variation is defined as the standard deviation of NPV divided
by the expected NPV.) The hospital adjusts for risk by adding or subtracting 3 percentage points to its
10 percent corporate cost of capital. After adjusting for differential risk, is the project still profitable?
d. What type of risk was measured and accounted for in Parts b. and c.? Should this be of concern to the
hospital's managers?
ANSWER
Problem 1
9/1/14 UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 14 -- Financial Forecasting
PROBLEM 1
Florida Home Health is a small home care agency owned by a group practice of nurses and physical
therapists in Tampa, Florida. During the past few years, the company reported the following revenues:
Year Revenues (thousands)
1 $2,058
2 $2,534
3 $2,472
4 $2,850
5 $3,000
6 ?
Predict Florida Home Health's Year 6 revenue.
ANSWER