Jiranna Healthcare-Case Study

1

JirannaHealthcare-CaseStudy

  1. Cash inflows

Theflowing are the cash inflows and outflows from the proposed project(see the Excel spreadsheet attached to the workings)

year

Cash outflow ($)

Cash inflow ($)

0

820,800

400,000

1

708,000

800,000

2

740,135

848,000

3

737,837

900,577

4

809,018

955,512

5

845,971

1,013,798

  1. Project evaluation techniques

evaluation

Value

NPV

$38,469

IRR

11.29%

MIRR

PBP

3.54 Years

DPBP

4.39 years

  1. Decision criteria

NPV-Thismeasures the profitability of the project (Bamberger,2008).In our case, if the hospital decides to designa centralized nurse triage line, then the NPV will be

$38469.Since the NPV is positive, it implies that this project isacceptable. Therefore, if the organization is basing their decisionon NPV, they should accept this project.

IRR-Thisis the rate of return which relate to independent single projects(Eugene&amp Michael, 2011).This rate is calculated using trial and error method. For thisproject, the internal rate of return IRR is equal to 11.29%. SinceIRR is greater than the hospital’s cost of capital, it means thatthe project is acceptable. Therefore, if the organization isevaluating its project based on the IRR bases, is should implementthe project.

MIRR-Thistechnique assumes that positive cash inflows are reinvested at thecompany’s cost of capital i.e. at 11%. The MIRR for this project is13.54% which is higher than the cost of capital and hence thisproject is acceptable.

PBP-Paybackperiod is the length of time a project will take to recoverinvestment committed to the project (Bamberger,2008).By offering this new service, Jiranna Healthcare would recover theinvestment in 3.54 years. Since this period is longer that thedesired time, it means that this project is not acceptable for theorganization.

DPBP-Discountedpayback period refers to the length of time a project would take torecover investment in it by using discounted cash flows (Bamberger,2008).The DPBP for this project is 4.39 years. Therefore, this project hasnot met the criteria of the company which requires a maximum of 3.5years for projects to pay back their initial investment. Thus, theproject is not acceptable if the hospital is evaluating its projectson payback period bases.

Conclusion

Eventhough some project evaluation techniques such as PBP and DPBP hasshown that the project is unacceptable, I would advise JirannaHealthcare to consider other factors while making their decisions.For example, by implementing the project they would acquire asignificant market share. The project is also a complement to theservice that they are currently offering and, therefore, they need toimplement this new project for them to retain their customers andacquire more as well. The profit has also proven to be profitableand, therefore, the organization would make no loss by implementingit, but they will enjoy more benefit from the project.

References

BambergerM.(2008).Corporate financial management 4thedition.Britain: Pearson Education.

EugeneB. &amp Michael E.(2011).FinancialManagement: Theory &amp Practice Branzil:Amazon.