Compute Present Value
PART 1
Imagine that you are the Chief Operations Officer (COO) for NCU AMC. You have been tasked with deciding whether in invest in a new piece of equipment as a capital purchase, and are considering purchasing from one of several vendors you are in active discussions with. As an incentive, one of the vendors pledges to buy back the piece of equipment in 3 years for $250,000.
Assuming a discount rate of 4%, what is the present value (PV) of the $250,000 to be received 3 years from now? Given your answer and using today’s date as the time of valuation, explain if a $1 received today is worth more or less than $1 received 3 years from now? Be sure to include the PV you derived in your response.
Consider the following information in your response:
· How do you calculate the Net Present Value (NPV)?
· Why is it important to understand the future value of money spent in the present?
· How does understanding NPV affect strategic planning and capital budgeting?
Length: 1-2 pages, not including the reference page
References: Include a minimum of 3 scholarly resources
PART2
If NCU AMC deposits $130,000 today into an investment fund that is expected to grow at an annual rate of 6%, what will be the value of this investment:
1. 2 years from now
2. 4 years from now
3. 7 years from now
NCU AMC is also considering a new surgical robot system for the OR costing a total of $2,300,000 (includes installation). The expected cash flows from each year of the 5-year period is $250,000, $320,000, $350,000, $400,000 and $425,000.
· What is the internal rate of return (IRR) for the project?
· Given an interest rate of 10%, what is the Net Present Value (NPV) for the surgical robot system project?
· Considering the IRR and the NPV, would you recommend that NCU AMC purchase the surgical robot system?
· What factors need to be considered in terms of investing the money for future patient care needs compared with purchasing the robot system for current patient care needs?
· Assess the potential legal and ethical ramifications of the purchase.
Prepare a memo to the CFO that presents the calculation (a photo or scan of the formula and calculation is acceptable) and what the results of the calculation mean.
Length: 2-3 pages, not including the reference page
References: Include a minimum of 5 scholarly resources.
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