Payback 4.1

2. Inflation is one of the most difficult factors to deal with in project analysis. a. Complete the inflation impact table shown in exhibit 20.2.1 b. What management information is provided by the inflation impact table?

3. One board member wants to make sure that complete risk analyses, including sensitivity and scenario analyses, are performed before the proposal is sent to the board. a. Perform a sensitivity analysis. b. What management information is provided by the sensitivity analysis?

4. a. Perform a scenario analysis. b. What management information is provided by the scenario analysis? c. Why is the expected NPV obtained in the scenario analysis different from the base case NPV?

5. A board member is interested in the utilization breakeven of the Center. a. What are the breakeven values of the three input variables that are highly uncertain? b. What management information is provided by the breakeven analysis?

6. To help with the risk-incorporation phase of the analysis, Jules Bergman consulted with the hospitals CFO about both the risk inherent in the hospital’s average project and how the hospital typically adjusts for risk. a. What is the project’s differential risk-adjusted NPV? b. Assess the corporate risk of the project. (No calculations are required. Think about the correlation between the surgery center and hospital cash flows.)

7. Jules is aware that some qualitative factors are relevant to the surgery center decision. a. What qualitative factors might support project acceptance? b. What qualitative factors might preclude project acceptance? c. Can you think of any costs that might be associated with the project that have not been included in the analysis? d. Are there any potential benefits that have not been included? e. What additional data would you seek from other hospital staff members to conduct a more thorough analysis?

8. Considering all points, would you build the ambulatory surgery center?

yes the ambulatory surgery center should be built.

9. In your opinion, what are three key learning points from this case?