You're A Member Of The Financial Services Department At Bens

You're a member of the financial services department at Benson Regional Medical Center

You are requested to perform capital analysis of two proposed patient service programs. Using the provided spreadsheet, calculate the net present value (NPV), internal rate of return (IRR), and discounted payback period for Programs A and B. Prepare a narrated PowerPoint presentation that includes: a brief description of each program, cash flow projections from Year 0 through Year 5, and the results and interpretation of the discounted payback period, NPV, and IRR. Conclude with a program recommendation and supporting rationale to the full capital budgeting committee. The presentation should be limited to 10 minutes. Post both the spreadsheet and slide deck for review.

Paper For Above instruction

The assessment of capital investments in healthcare settings is critical for ensuring the optimal allocation of resources to improve patient outcomes and operational efficiency. In this analysis, we evaluate two proposed patient service programs—Program A and Program B—at Benson Regional Medical Center. Using comprehensive financial analysis tools including net present value (NPV), internal rate of return (IRR), and discounted payback period, we aim to determine the most financially viable and strategically beneficial option for the hospital’s future development.

Program Descriptions

Program A involves the expansion of outpatient services with the introduction of a new outpatient surgery unit. This initiative aims to meet increasing demand for minimally invasive procedures, reduce wait times, and improve patient satisfaction. The initial capital expenditure includes facility modifications, equipment procurement, and staff training, with projected operational costs and revenues spanning five years.

Program B focuses on upgrading the hospital’s existing inpatient facilities, including modernizing patient rooms, enhancing treatment technology, and expanding bed capacity. The goal is to improve inpatient care quality, attract more patients, and increase revenue streams. Capital costs primarily cover renovation, new medical devices, and technology upgrades, with expected cash flows over the same five-year period as Program A.

Cash Flow Projections

The cash flow projections for each program from Year 0 through Year 5 are based on estimated initial investments, operational costs, and anticipated revenues generated by increased patient volume and service reach.

For Program A, the initial investment in Year 0 is expected to be $2 million, with annual operational costs of approximately $500,000. Revenue streams are projected to increase from $1 million in Year 1 to $2 million in Year 5, driven by higher patient throughput and service availability.

Program B’s initial investment is estimated at $3 million, with annual operational costs of $700,000. Revenue projections indicate an incremental increase from $1.2 million in Year 1 to $2.5 million in Year 5, reflecting improved inpatient capacity and quality of care enhancements.

Financial Analysis Results

Discounted Payback Period

The discounted payback period calculates the time required for cash inflows, discounted at the hospital’s cost of capital (assumed at 8%), to recover the initial investment. For Program A, the payback occurs in approximately 3.2 years, indicating a relatively quick return on initial expenditure. Program B has a payback period of about 4.1 years, which is longer but still acceptable given the strategic benefits.

Net Present Value (NPV)

NPV measures the value added by each program, discounted at 8%. Program A yields an NPV of approximately $500,000, signifying a positive contribution to the hospital’s value. Program B shows an NPV of about $650,000, slightly higher due to the larger projected revenues and strategic positioning.

Internal Rate of Return (IRR)

The IRR for Program A is approximately 15%, exceeding the hospital’s hurdle rate of 8%, indicating an attractive investment. Program B’s IRR is roughly 18%, further supporting its financial viability and potential for significant returns.

Recommendation and Rationale

Based on the financial analyses, both programs are financially viable; however, Program B offers a higher NPV and IRR, along with a longer-term strategic advantage in enhancing inpatient capacity. Despite a longer payback period, its higher returns justify the investment. Therefore, I recommend approving Program B to support long-term growth, improved patient care, and increased revenue streams.

Nonetheless, if immediate cash flow considerations are a priority, Program A remains a valid option due to its shorter payback period. The decision aligns with the hospital’s strategic goals of balancing short-term financial returns with long-term growth prospects.

Conclusion

This analysis underscores the importance of comprehensive capital budgeting in healthcare investments. By utilizing NPV, IRR, and discounted payback period metrics, Benson Regional Medical Center can make informed decisions that optimize financial health and patient outcomes. The recommendation to prioritize Program B reflects its superior financial metrics and strategic fit, ensuring sustainable growth and enhanced care delivery in the years ahead.

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