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Scenario 1: ABC Hospital

 

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ABC Hospital is a rural facility in Medford, Oregon that competes with two other hospitals in delivering quality patient care in the Rogue Valley. One of the competing hospitals provides cancer treatment services similar to ABC Hospital and has been gaining a larger market share in the last 12 months because of its television and billboard ads.

 

Recently, the local news station covered a story about a report published by an independent research company stating that in the last five years, the Rogue Valley has experienced a steady increase of residents with pancreatic and testicular cancer. In response to this report and because of the shrinking market share, the chief executive officer (CEO) of the hospital has tasked the chief strategy officer (CSO) and the chief financial officer (CFO) with exploring whether it should make additional investments in cancer treatment services that will allow the organization to increase its capacity to serve more patients and gain a larger sector of the market.

 

Based on their analysis, the CSO and CFO have presented you with the following two options to review prior to the meeting with the CEO:

 

· Option 1: ABC Hospital invests $11,995,000 in the development of a new state-of-the-art cancer treatment center. Based on their estimates, the first year cash flow will be $2,000,000, the second year cash flow will be $4,000,000, the third year cash flow will be $5,000,000, and the fourth year cash flow will be $8,000,000. The expected return of 8.9% is used as the discount rate.

 

· Option 2: ABC Hospital invests $5,095,000 in a joint venture with a reputable oncology group and the hospital agrees to a 55% interest in the joint venture. Based on the estimates, the first year cash flow will be $1,500,000, the second year cash flow will be $3,000,000, the third year cash flow will be $4,500,000, and the fourth year cash flow will be $6,500,000. The expected return of 8.9% is used as the discount rate.

 

The Assignment

 

Explain which of the two options you would recommend to the CEO. You may only select one option. Support your position and show your calculations. It is essential that you use at least two different financial ratio calculations.

 

 

 

 

Scenario 3: Montgomery Home and Community-Based Services

 

Montgomery Home and Community-Based Services is considering a major expansion that will enable it to attract a different clientele to its organization. Currently, they serve only 34% of the frail elderly seniors and persons with disabilities in a three county area, with the majority of the residents working for the federal and state government. Montgomery relies 100% on local government funding to provide in home support and homemaker service to their clients. Their new chief executive officer (CEO) would like the organization to expand its revenue stream by investing in a senior multipurpose center serving healthy seniors by offering them arts and crafts and health and wellness programs. The center will also contain an Internet café offering nutritious breakfast and lunch options.

 

The CEO has commissioned a needs assessment, and the study’s results reveal that there are only 15 retired seniors who would be willing to pay the monthly fees to access the center. Further results reveal that there are approximately 120 seniors who will be retiring from the government in three years who would be willing to become members at the center.

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