Evaluate the project allowing for abandonment

Assignment Help Risk Management
Reference no: EM13197503

Hell's Pass Hospital is evaluating an experimental oncology treatment. The treatment is currently under review for Medicare reimbursement and legislative experts believe the treatment has a 70% chance of receiving approval for Medicare reimbursement. If the the procedure is approved it has an expected volume of 110 procedures per year and only 40 procedures per year if not approved. Each procedure generates $30,000 in revenues and has $10,000 in variable costs. The price does not depend on approval, just the quantity. The equipment is $5m and would last for five years but may be scrapped for $3m at the end of year 1.Hell's Pass Hospital is a not-for-profit institution with an 8% cost of capital; however, the CFO recomends using a 12% discount rate as the project is relatively risky. Note that expected volume will be 40 during year 1 and would then rise to 110 during years 2-5 only if the procedure is approved.

Upfront costs $5,000,000
1-year scrap value $3,000,000
Revenues per procedure $30,000
Costs per procedure $10,000
Volume | approval 110
Volume | no approval 40
Project cost of capital 12%
Corporate cost of capital 8%


a) Evaluate whether investment now (time=0) is financially acceptable without using options.

b) Now evaluate the project allowing for abandonment at the end of year 1.

c) Can you suggest a different option that might be a better strategy for this scenario?

Reference no: EM13197503

Identify cross-border differences in corporate hedging

Identify several cross-border differences in corporate hedging of translation exposure. What might account for these differences? Recommend general policies for deciding whet

Application of the concepts and techniques

Provide a preliminary list of references you intend to consult to support your entire project. In total, your outline should consist of major headings and bullet points and

How the organization can minimize the given sanctions

Determine whether the organization is at risk for receiving intermediate sanctions from the Internal Revenue Service for conferring excess economic benefits on disqualified

What is your expected starting salary

You have chosen biology as your college major because you would like to be a medical doctor. However, you find that the probability of being accepted into medical school is

Why might some prefer a prix fixe dinner

Why might some prefer a prix fixe (fixed price) dinner costing about the same as an a la carte one (where you pay individually for each item)? (Assume the food is identical)

What should be the equity capitalisation rate

If the Modigliani-Miller approach is followed, what should be the equity capitalisation rate? Assume that corporate taxes do not exist, and that the firm always maintains it

Importance of the finance function for a successful

Did you ever stop to think about the importance of the finance function for a successful, multinational company (i.e, McDonalds, Apple, Johnson & Johnson, etc)? Someone has

Explain the financial investment with highest risk available

From the e-Activity Part 1, explain the financial investment with the highest and lowest risks available in the marketplace and indicate how you draw your conclusions relate


Write a Review

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd