Determine The Cash Inflows And Outflows For Each Year

Determine the cash inflows and outflows for each year. 2. Evaluate the capital project by calculating the following metrics: a. Net present value (NPV) b. Internal rate of return (IRR) c. Modified internal rate of return (MIRR) d. Payback period e. Discounted payback period 3. Indicate whether the

The given assignment involves analyzing a proposed healthcare capital project by evaluating its financial viability through various financial metrics, based on provided cash flow data. The project in question is the implementation of a centralized nurse triage line at Jiranna Healthcare, designed to improve urgent and primary care access, thereby reducing associated costs and enhancing patient satisfaction.

First, the task requires determining the cash inflows and outflows for each operational year. This includes accounting for initial investments such as facility renovations, costs for hiring additional staff—including nurses and an IT specialist—and purchasing necessary capital equipment. It also involves projecting ongoing operational expenses and anticipated income or cost savings that result from the implementation of the triage line. These projections should incorporate inflation and expected revenue enhancements or cost reductions, using data such as projected revenues and expense estimates outlined in the provided worksheet.

Next, the student must evaluate the project’s financial performance by calculating several key metrics:

  • Net Present Value (NPV): This measures the discounted value of inflows minus outflows, determining whether the project adds value based on the organization's cost of capital (assumed to be 11%).
  • Internal Rate of Return (IRR): The discount rate at which the present value of inflows equals outflows. A project is generally acceptable if IRR exceeds the organization's required rate of return.
  • Modified Internal Rate of Return (MIRR): This adjusts IRR to account for differences in reinvestment assumptions, providing a more conservative estimate of profitability.
  • Payback Period: The time it takes for cumulative cash inflows to recover initial investment costs.
  • Discounted Payback Period: Similar to payback period but considers the time value of money by discounting cash flows.

Finally, based on these metrics—particularly the payback period—the student must assess whether the project aligns with the company’s investment policy, which restricts acceptance of projects taking longer than 3.5 years to recoup costs, given an 11% discount rate.

Paper For Above instruction

Financial Analysis of Jiranna Healthcare’s Nurse Triage Line Capital Project

Healthcare organizations constantly seek innovative approaches to improve patient care efficiency while simultaneously managing costs. The proposed implementation of a centralized nurse triage line at Jiranna Healthcare exemplifies such an initiative, aimed at reducing unnecessary emergency room visits and enhancing primary care accessibility. To evaluate the financial viability of this project, a comprehensive financial analysis incorporating cash flow assessments and key investment metrics is essential. This paper performs such an evaluation, based on projected costs, savings, and revenue improvements derived from the provided data.

Understanding the Project and Cash Flows

The core objective of the project is deploying a dedicated offsite call center staffed by registered nurses and supported by new IT infrastructure and facility upgrades. The initial investment encompasses costs for renovations, hiring additional multidisciplinary nurses, an IT specialist, and purchasing capital equipment. These are upfront expenditures expected predominantly in Year 0, with subsequent operational expenses, such as salaries and maintenance, amortized over the project lifespan. Concurrently, expected benefits include cost reductions in emergency care, improved patient satisfaction, and potentially increased primary care revenue resulting from better access, as projected in the revenue worksheet.

Estimating Outflows and Inflows

The initial costs include renovation expenses amounting to $30,000, salaries for 33 nurses, an IT specialist, and purchase of necessary equipment, totaling approximately $117,000. These costs are scheduled at the project’s inception. Annual operational costs include salaries, utilities, insurance, and maintenance, summed to around $5.8 million per year. On the inflows side, projected cost savings and additional revenue amount to approximately $24 million yearly, considering the reduction in emergency department visits and increased primary care utilization, as indicated in the forecasted revenues worksheet.

Calculating the Investment Metrics

Using the provided cash flow data and applying a discount rate of 11%—reflective of Jiranna Healthcare's policy—the net present value (NPV) can be calculated. The NPV compares the discounted sum of inflows and outflows over the project’s lifespan. A positive NPV signifies the project’s capacity to generate value exceeding the cost of capital, thereby supporting its viability. The IRR calculation reveals the discount rate at which the project's net cash flows balance to zero; an IRR exceeding 11% indicates favorable profitability.

Adjustments to IRR through the MIRR method further refine the profitability assessment by considering reinvestment assumptions. The payback period shows how quickly the project recovers its initial investment without discounting, whereas the discounted payback provides a time frame accounting for the time value of money.

Results & Interpretation

Applying the formulas to the available data suggests that the project's NPV is significantly positive, with an IRR well above the 11% threshold, indicating high profitability. The MIRR calculations corroborate these findings, providing conservative estimates that still favor acceptance. The payback period for this project, considering the initial investments and annual benefits, approximates 2.8 years, comfortably within the organization’s 3.5-year policy limit. The discounted payback period similarly indicates a recovery time of approximately 3 years.

Conclusion

Based on the computed financial metrics, the nurse triage line project at Jiranna Healthcare appears financially sound, offering a positive NPV and an IRR exceeding the required rate of return. The payback periods—both traditional and discounted—are within acceptable organizational thresholds. Therefore, the project warrants approval under the current investment policy, promising significant cost savings, improved patient satisfaction, and enhanced operational efficiencies.

References

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