The CFO of Wellmark Health System is analyzing a capital investment proposal. The assumptions she is Show more The CFO of Wellmark Health System is analyzing a capital investment proposal. The assumptions she is given are as follows:
Initial cash outlay-radiology eqpt $1300000 Useful life of equipment 5 yrs. Salvage value end of 5 yrs. 15% Effective tax expense rate for Wellmark 33.0% Further you should assume the project is terminated at the end of five years and the equipment is sold at salvage value. The operating cash flows for the project are estimated as follows: The firms WACC is 11%. The firm also adjusts the WACC based on evaluated risk of each investment. The firms scale is as follows: Average risk Equal to WACC This project is assumed to be This project is assumed to be Below average risk WACC less 2% of below average risk of below average risk Above average risk WACC plus 2% Year 1 2 3 4 5 Revenues $500000 $525000 $525000 $650000 $700000 Opr. expenses $200000 $225000 $250000 $310000 $350000 Working capital needs $25000 $35000 $45000 $50000 ** ** Assume working capital is recovered in year 5 ** Assume working capital is recovered in year 5 Please calculate the following for the project and indicate whether or Please calculate the following for the project and indicate whether or Please calculate the following for the project and indicate whether or not this project should be funded (from a financial perspective only): not this project should be funded (from a financial perspective only): not this project should be funded (from a financial perspective only): Net present value Internal rate of return Payback year Project funded? (yes or no) Show less
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