Chapter 14

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''Capital budgeting'' decisions, which involve the acquisition of (choose 3)

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Capital budgeting decisions, which involve the acquisition of land, buildings, and equipment, are among the most important decisions made by healthcare managers.

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Capital budgeting

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Second, they typically are costly to

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Finally, they define the ____ direction of the business.

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proposed capital budgeting projects are ____ according to purpose and size

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proposed capital budgeting projects are classified according to _ and _

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for example (choose 2)

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investor-owned businesses, projects that are expected to ______ to shareholder wealth

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not-for-profit businesses, identifies a project’s expected ____ on the business’s financial condition

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financial analysis: estimate the cash flows

initial cash outlay (cost)
Operating flows
Terminal (ending) flow

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initial cash outlay (___)
Operating flows
Terminal (ending) flow

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Initial cash outlay (cost)
Operating flows
Terminal (___) flow

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financial analysis assess the project's

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Estimate the project cost of capital (opportunity cost of capital or discount rate)

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Estimate the project cost of capital ( of capital or discount rate)

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Estimate the project cost of capital (opportunity cost of capital or _ _)

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financial analysis measures the _ _

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Key Concepts in Cash Flow Estimation

Focus on cash flow as opposed to accounting income

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Key Concepts in Cash Flow Estimation

Focus on as opposed to accounting income

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Cash flow timing

-Usually cash flows occur daily
-Often approximated by annual flows

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Cash flow timing

-Usually cash flows occur ______
-Often approximated by annual flows

1

Cash flow timing

-Usually cash flows occur daily
-Often approximated by ___ flows

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Project life

-Often unknown
-Often truncated if long (terminal value)

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Project life

-Often ____
-Often truncated if long (terminal value)

1

Key Concepts in Cash Flow Estimation

-Do not include sunk costs
-Do include opportunity costs:
For capital
For other resources

1

Key Concepts in Cash Flow Estimation

- ____________________________
-Do include opportunity costs:
For capital
For other resources

1

Key Concepts in Cash Flow Estimation

-Do not include sunk costs
-Do include _________:
For capital
For other resources

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Inflation effects must be considered

Any strategic value implications must be considered

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what 2 things must be considered?

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investment at t = 0 ( _ _ _ ) s

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Investment at t = 0 (000s)

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note that these cash flows are estimates

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If this were a replacement rather than a new (expansion) project, would the analysis change?

The relevant operating cash flows would be the same between the cash flows on the new and old project.

1

If this were a replacement rather than a new (expansion) project, would the analysis change?

The relevant operating cash flows would be _ _ between the cash flows on the new and old project.

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However, selling the old equipment would produce an immediate cash inflow, but the salvage value at the end of its original life is foregone

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There are many different approaches to breakeven in project analysis:

Time breakeven
Input variable breakeven

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There are many different approaches to breakeven in project analysis:

Time breakeven
___ variable breakeven

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There are many different approaches to breakeven in project analysis:

___ breakeven
Input variable breakeven

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time breakeven, which is measured by payback (or payback period).

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time breakeven, which is measured by ---------- (or --------- period).

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Advantages of Payback:

1. Easy to calculate and understand.
Provides an indication of a project’s risk and liquidity.

Disadvantages of Payback:

1. Ignores time value.
2. Ignores all cash flows that occur after the payback period.

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Advantages of Payback:

1. __ to calculate and understand.
Provides an indication of a project’s risk and _
Disadvantages of Payback:

1. Ignores time value.
2. Ignores all cash flows that occur after the payback period.

1

Advantages of Payback:

1. Easy to calculate and understand.
Provides an indication of a project’s risk and liquidity.

Disadvantages of Payback:

1. Ignores __ _.
2. Ignores all cash flows that occur after the payback period.

ez

''Capital budgeting'' decisions, which involve the acquisition of (choose 3)

Capital budgeting decisions, which involve the acquisition of land, buildings, and equipment, are among the most important decisions made by healthcare managers.

Capital budgeting

Second, they typically are costly to

Finally, they define the ____ direction of the business.

proposed capital budgeting projects are ____ according to purpose and size

proposed capital budgeting projects are classified according to ___ and ___

for example (choose 2)

investor-owned businesses, projects that are expected to ______ to shareholder wealth

not-for-profit businesses, identifies a project’s expected ____ on the business’s financial condition

financial analysis: estimate the cash flows initial cash outlay (cost) Operating flows Terminal (ending) flow

initial cash outlay (___) Operating flows Terminal (ending) flow

Initial cash outlay (cost) Operating flows Terminal (___) flow

financial analysis assess the project's

Estimate the project cost of capital (opportunity cost of capital or discount rate)

Estimate the project cost of capital (____ ____ of capital or discount rate)

Estimate the project cost of capital (opportunity cost of capital or ___ ___)

financial analysis measures the ___ ___

Key Concepts in Cash Flow Estimation Focus on cash flow as opposed to accounting income

Key Concepts in Cash Flow Estimation Focus on __ __ as opposed to accounting income

proposed capital budgeting projects are classified according to _ and _

financial analysis: estimate the cash flows

initial cash outlay (cost)
Operating flows
Terminal (ending) flow

initial cash outlay (___)
Operating flows
Terminal (ending) flow

Initial cash outlay (cost)
Operating flows
Terminal (___) flow

Estimate the project cost of capital ( of capital or discount rate)

Estimate the project cost of capital (opportunity cost of capital or _ _)

financial analysis measures the _ _

Key Concepts in Cash Flow Estimation

Focus on cash flow as opposed to accounting income

Key Concepts in Cash Flow Estimation

Focus on as opposed to accounting income

Cash flow timing

-Usually cash flows occur daily
-Often approximated by annual flows

Cash flow timing

-Usually cash flows occur ______
-Often approximated by annual flows

Cash flow timing

-Usually cash flows occur daily
-Often approximated by ___ flows

Project life

-Often unknown
-Often truncated if long (terminal value)

Project life

-Often ____
-Often truncated if long (terminal value)

Key Concepts in Cash Flow Estimation

-Do not include sunk costs
-Do include opportunity costs:
For capital
For other resources

Key Concepts in Cash Flow Estimation

- ____________________________
-Do include opportunity costs:
For capital
For other resources

Key Concepts in Cash Flow Estimation

-Do not include sunk costs
-Do include _________:
For capital
For other resources

Inflation effects must be considered

Any strategic value implications must be considered

If this were a replacement rather than a new (expansion) project, would the analysis change?

The relevant operating cash flows would be the same between the cash flows on the new and old project.

If this were a replacement rather than a new (expansion) project, would the analysis change?

The relevant operating cash flows would be _ _ between the cash flows on the new and old project.

There are many different approaches to breakeven in project analysis:

Time breakeven
Input variable breakeven