Financial Exercises

The essence of management is to make decisions, and to that extent, a health care manager must have a working knowledge on how to calculate time value money (TVM) financial problems.

Scenario

As a health care manager at a hospital, your supervisor has asked you to submit a set of financial calculations needed for the new capital projects of purchasing an MRI and deciding whether to expand the emergency room or to renovate the hospital lobby.

Preparation

Access Excel for Corporate Finance Professionals located in the Week 3 Learning Activities folder and watch it. Specifically, “NPV Tests in Excel” and “NPV and Scenario Analysis” in Lesson 2, “Project Selection in Excel,” may be helpful for understanding this assignment

Assignment Deliverable

Complete all sets and parts of the

Financial Exercises

worksheet. The file contains the following 5 worksheet tabs:

Wk 3: Set 1, Part 1
Wk 3: Set 1, Part 2
Wk 3: Set 2, Part 1
Wk 3: Set 2, Part 2
Wk 3: Set 2, Part 3

Submit your assignment.

Assignment Support

Access and watch the following videos in the Week 3 section on the HCS/385 Video Lectures Home Page for examples of different formulas used to calculate in Microsoft Excel:
“Present Value Problems #1–3”
“Future Value Problems #1–2”
“Net Present Value Problems #1–3”
“Internal Rate of Return Problems #1–3”
“Break-Even Point Problems #1–3”

>Index Workbook Index: Click on the following links or on each of the tabs below to access the

calculation pages. Complete all sections on each page using the instructions in the A

cell.

Wk
3
– Set 1, Part 1

Wk 3 – Set 1, Part 2

Wk 3 – Set 2, Part 1

Wk 3 – Set 2, Part 2

Wk 3 – Set 2, Part 3

Wk 3 – Set 1, Part 1

Wk 3

Exercises:

in A5 through B13 using either the financial functions in Excel or the present value (PV) formula shown in A2 and future value (FV) formula shown in A3.

Table 1: Set 1, Part 1 Questions
Question

,000 in 8 years, how much do you need to deposit in the bank today if the account pays an interest rate of 9%?

Insert your answer.

. You have been offered $3,000 in 4 years for providing $2,000 today into a business venture with a friend. If interest rates are 10%, is this a good investment for you?

Insert your answer.

if it is invested in an account with an annual interest rate of 8%?

Insert your answer.

Tab 1 of 5: Complete the following

Financial

Table 1: Set 1, Part 1

Question

Present value formula: PV = FV * 1 / (1+i)^n

Future value formula: FV = PV * (1+i)^n

Answer

1. If you want to have $

Insert your answer.

2. What will $110,000 grow to be in 9 years if it is invested today at 11%?

3. You would like to have $200,000 in a college fund in 15 years. How much do you need today if you expect to earn 12% while you are investing to pay for your child’s college?

5. What will $82,000 grow to be in 11 years if it is invested today at 8% and the interest rate is compounded monthly?

6. How many years will it take for $136,000 to grow to $4

68,000

7. At what interest rate must $112,000 be invested so that it will be worth $392,000 in 14 years?

&”Arial,Regular”&10 Wk 2 Financial Exercises – Part 1
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Wk 3 – Set 1, Part 2

0
1
2
3
4
5

60,000
60,000
60,000
60,000

Insert your answer.

Insert your NPV calculation.

Year
0
1
2
3
4
Cash Flow

Insert your answer.

‘s cash flow projections are shown in A19 through F20, and

‘s projections are shown in A22 through G23.

Project A

Year
0
1
2
3
4

Cash Flow

Project B

Year
0
1
2
3
4
5

Cash Flow

175,000
175,000
175,000
175,000

Insert your answer.

Year
0
1
2
3
4
5
6
7
Cash Flow

Insert your answer.

Year
0
1
2
3
4
5
6
Cash Flow

68,000

Insert your answer.

Year
0
1
2
3
4
5
6

Cash Flow

82,500
77,000

Insert your answer.

Tab 2 of 5: Complete the following 6 Wk 3 Financial Exercises: Set 1, Part 2 problems.
1. Calculate the net present value (NPV) in A4 of the following cash flow stream shown in A5 through G6 if the required rate is 12%.
	Insert your NPV calculation.
						Year
						Cash Flow	(230,000)	60,000
Is this a good project for the business to accept? Explain why or why not in A8.
2. Calculate the NPV in A11 of the following cash flow projections shown in A12 through G13 based on a required rate of 10.5%.
(120,000)	35,000	47,500	55,000	62,000
Is this a good project for the business to accept? Explain why or why not in A15.
3. A company needs to decide if it will move forward with 2 new projects that it is evaluating.	Project A	Project B
-800,000	220,000	265,000	292,000	317,000
-650,000					175,000
Based on the risk of each project, the company has a required rate of return of 11% for Project A and 11.5% for Project B. The company has a $1.5 million budget to spend on new projects for the year. Should the company move forward with one, both, or neither of the two new projects? Indicate your answer in A25 and show your work to support your answer.
4. Calculate the internal rate of return (IRR) in A30 of the following cash flows shown in A28 through I29.
(1,650,000)	330,000	365,000	380,000	415,000	405,000	370000	294,000
5. If a company has a required rate of return of 15%, should the following project be accepted based on these expected cash flows shown in A33 through H34?
(274,000)	73,000	76,500	78,000		82,500		77,000
Explain why the company should or should not move forward with this endeavor in A36.
6. Based on the investor expectations of earning at least 12%, should this project show in A39 through H40 be completed?
(133,000)	37,000	42,750	44,000	46,500
Explain why or why not the company should move forward with this endeavor in A42.

&”Arial,Regular”&10Wk 2 Financial Exercises – Part 2
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Wk 3 – Set 2, Part 1

. In your descriptions in B5 through B9, include the budget’s objective, how the budget assists an organization in managing its financial activities, and what types of data need to be included in that specific budget.

Table 1: Set 2, Part 1 Descriptions

Description

Financial

Tab 3 of 5: Describe the 5 types of budgets listed in A5 through A9 for these Wk 3 Financial Exercises:	Table 1: Set 2, Part 1	Description
Type of Budget
Cash Flow	Insert cash flow description.
Operating	Insert operating description.
Sales	Insert sales description.
Static	Insert static description.
Insert financial description.

Wk 3 – Set 2, Part 2

in A11 through B15 using the ratios in A2 through A5.

Table 1: Set 2, Part 2 Questions

Answer

Insert your answer.

Tab 4 of 5: Complete the following 3 Wk 3 Financial Exercises:	Table 1: Set 2, Part 2 Questions
Sales level at which operating income is zero: If sales above breakeven, then profit; if sales below break even, then loss; fixed expenses = total contribution margin.
Total sales = total expenses
Break Even Point: Unit Sold = Fixed expenses + Operating Income / Contribution Margin per unit
Break Even Point: Sales $ = Fixed expenses + Operating Income / Contribution Margin Ratio
	Problem
1. Calculate the break even number of units if the fixed expenses are $7,000 and the contribution margin is $14/unit.
2. Calculate the break even sales dollars if the fixed expenses are $7,000 and the contribution ratio is 40%.
3. Calculate the break even number of units with a target profit of $120,000 if the fixed expenses are $15,000 and the contribution margin is $60/unit.

Wk 3 – Set 2, Part 3

Problem
Answer

Insert your answer.

Tab 5 of 5: Complete the following 5 Wk 3 Financial Exercises: Set 2, Part 3 Questions in A3 through B9.

Table 1: Set 2, Part 3 Questions

1. How much will you have saved after 6 years by contributing $1,200 at the end of each year if you expect to earn 11% on the investment?

2. A business owner plans to deposit their annual profits in an investment account earning a 9% annual return. If the owner starts with their first deposit today for $22,000 and expects to make the same profit for the next 7 years, how much will be saved for retirement at that point?

3. An investor plans to invest $500/year and expects to get a 10.5% return. If the investor makes these contributions at the end of the next 20 years, what is the present value (PV) of this investment today?

4. What is the PV of a 12-year lease arrangement with an interest rate of 7.5% that requires annual payments of $4,250/year with the first payment due now?

5. A recent college graduate hopes to have $200,000 saved in their retirement account 25 years from now by contributing $150/month in a 401(k) plan. The goal is to earn 10% annually on the monthly contribution. Will they have the $200,000 at the end of the 25 years?

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