Individual Assignment 2
Case Analysis: UVa Hospital System: The Long-term Acute Care Hospital Project
(Case 28 of the prescribed textbook)
Review the above case and answer the following questions
1. What are the differences between nonprofit institutions and for-profit institutions? For example, how would a for-profit hospital approach the LTAC decision?
2. What is the average cost of capital of the for-profit hospitals provided in case Exhibit 3? Would this serve as a reasonable discount rate to analyze a set of for-profit LTAC facility cash flows? Should Fitzgerald use this number to discount the U.Va. LTAC facility’s cash flows? You may assume market risk premium of 6% and a corporate tax rate of 35%.
3. Using the information in the case and the memo from Karen Mulroney in case Exhibit 1, complete the cash flow projections in the spreadsheet provided. What do you get for the NPV and IRR of those cash flows? Use attached excel file to prepare the projections.
4. What are the main drivers for NPV and IRR? Show the impact on NPV and IRR by changing a couple of these drivers to a “downside scenario” value.
5. Based on your financial analysis, should Fitzgerald propose the LTAC project in the board meeting?