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''Capital budgeting'' decisions, which involve the acquisition of (choose 3)
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land
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food
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cars
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air
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buildings
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equipment
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Capital budgeting decisions, which involve the acquisition of land, buildings, and equipment, are among the most important decisions made by healthcare managers.
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Second, they typically are costly to
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Finally, they define the ____ direction of the business.
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Finally, they define the strategic direction of the business.
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Finally, they define the dull direction of the business.
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proposed capital budgeting projects are ____ according to purpose and size
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proposed capital budgeting projects are classified according to ___ and ___
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purpose and assets
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purpose and size
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for example (choose 2)
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expansion of existing services
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expansion into no services
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expansion into new services
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investor-owned businesses, projects that are expected to ______ to shareholder wealth
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not contribute
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contribute
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not-for-profit businesses, identifies a project’s expected ____ on the business’s financial condition
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financial analysis: estimate the cash flows
initial cash outlay (cost)
Operating flows
Terminal (ending) flow
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initial cash outlay (___)
Operating flows
Terminal (ending) flow
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Initial cash outlay (cost)
Operating flows
Terminal (___) flow
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financial analysis assess the project's
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Estimate the project cost of capital (opportunity cost of capital or discount rate)
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Estimate the project cost of capital (____ ____ of capital or discount rate)
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discount cost
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opportunity cost
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Estimate the project cost of capital (opportunity cost of capital or ___ ___)
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discount rate
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expenses rate
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financial analysis measures the ___ ___
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financial effort
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financial impact
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Key Concepts in Cash Flow Estimation
Focus on cash flow as opposed to accounting income
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Key Concepts in Cash Flow Estimation
Focus on __ __ as opposed to accounting income
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Cash flow timing
-Usually cash flows occur daily
-Often approximated by annual flows
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Cash flow timing
-Usually cash flows occur ______
-Often approximated by annual flows
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Cash flow timing
-Usually cash flows occur daily
-Often approximated by ___ flows
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Project life
-Often unknown
-Often truncated if long (terminal value)
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Project life
-Often ____
-Often truncated if long (terminal value)
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Key Concepts in Cash Flow Estimation
-Do not include sunk costs
-Do include opportunity costs:
For capital
For other resources
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Key Concepts in Cash Flow Estimation
- ____________________________
-Do include opportunity costs:
For capital
For other resources
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Key Concepts in Cash Flow Estimation
-Do not include sunk costs
-Do include _________:
For capital
For other resources
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opportunity costs
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business costs
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Inflation effects must be considered
Any strategic value implications must be considered
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what 2 things must be considered?
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deflation effects
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inflation effects
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non strategic value
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strategic value
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investment at t = 0 ( _ _ _ ) s
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Investment at t = 0 (000s)
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note that these cash flows are estimates
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If this were a replacement rather than a new (expansion) project, would the analysis change?
The relevant operating cash flows would be the same between the cash flows on the new and old project.
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If this were a replacement rather than a new (expansion) project, would the analysis change?
The relevant operating cash flows would be ___ ___ between the cash flows on the new and old project.
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However, selling the old equipment would produce an immediate cash inflow, but the salvage value at the end of its original life is foregone
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There are many different approaches to breakeven in project analysis:
Time breakeven
Input variable breakeven
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There are many different approaches to breakeven in project analysis:
Time breakeven
___ variable breakeven
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There are many different approaches to breakeven in project analysis:
___ breakeven
Input variable breakeven
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time breakeven, which is measured by payback (or payback period).
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time breakeven, which is measured by ---------- (or --------- period).
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Advantages of Payback:
1. Easy to calculate and understand.
Provides an indication of a project’s risk and liquidity.
Disadvantages of Payback:
1. Ignores time value.
2. Ignores all cash flows that occur after the payback period.
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Advantages of Payback:
1. ____ to calculate and understand.
Provides an indication of a project’s risk and ___
Disadvantages of Payback:
1. Ignores time value.
2. Ignores all cash flows that occur after the payback period.
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hard, liquidity
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easy, liquidity
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Advantages of Payback:
1. Easy to calculate and understand.
Provides an indication of a project’s risk and liquidity.
Disadvantages of Payback:
1. Ignores ____ ___.
2. Ignores all cash flows that occur after the payback period.