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1!Capital Budgeting Analysis for Trinity Hospital
Capital budgeting analysis addresses the predicament of strategic long-standing investment decisions. It entails analyzing, evaluating and deciding whether resources should be allocated to a venture or not. In addition, it analyzes costs and benefits associated with potential investment expenditure (Pamela & Frank, 2002). This work will attempt to carry out a capital budget analysis for the $ 1 million new research cancer that Trinity Hospital considers putting up.
Trinity Hospital is considering putting up a new $ 1million cancer research wing in five years time. For the computations, the initial investment cost is $ 1 million, which will be invested wholly at the beginning
of the first year. The amount will be used to purchase machinery and equipment for the cancer center and some will cater for operational costs. The project is estimated to have a useful life of 10 years. Other cash outflows for years 1 to 10 are expected to be $120,000 per annum. The expected cash flow is $400,000 per year from year 1 to 10. We shall assume that all cash flows are after-tax and no cash flow is expected after year 10. Further, it is assumed that the residue value for types of machinery will be zero. The required rate of return will be 10%. The techniques for capital budget analysis include the use of net present value (Pamela & Frank, 2002). From the table below, the project would generate a positive net present value of $654,980.32. Therefore, it is considered feasible. The table below gives the computation of the net present value for the cancer center.