Hell’s pass hospital is evaluating an experimental oncology treatment

Hell’s Pass Hospital is evaluating an experimental oncology treatment. The treatment is currently under review for Medicare reimbursement and legislative experts believe the treatment has a 70% chance of receiving approval for
Medicare reimbursement. If the the procedure is approved it has an expected volume of 110 procedures per year and only 40 procedures per year if not approved. Each procedure generates $30,000 in revenues and has $10,000
in variable costs. The price does not depend on approval, just the quantity. The equipment is $5m and would last for five years but may be scrapped for $3m at the end of year 1.Hell’s Pass Hospital is a not-for-profit institution with an 8% cost of capital; however, the CFO recomends using a 12% discount rate as the project is relatively risky. Note that expected volume will be 40 during year 1 and would then rise to 110 during years 2-5 only if the procedure is approved.

Upfront costs $5,000,000
1-year scrap value $3,000,000
Revenues per procedure $30,000
Costs per procedure $10,000
Volume | approval 110
Volume | no approval 40
Project cost of capital 12%
Corporate cost of capital 8%

Questions

a) Evaluate whether investment now (time=0) is financially acceptable without using options.

b) Now evaluate the project allowing for abandonment at the end of year 1.

c) Can you suggest a different option that might be a better strategy for this scenario?


To complete this assignment, download Problem Set 7 – Real Options.xlsx, perform your calculations, answer the questions above, and save and submit the updated Excel file as your assignment file. The solved problem set should consist of a single, well-organized document that contains your work. Solutions should be explained briefly using no more than a short paragraph

Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our Guarantees

101papers.com is always working towards customer satisfaction. Our professional academic writers always aim at producing comprehensive papers that possess quality and originality at pocket-friendly prices. Students are assured that all their private information is safe with us.

Money-Back Guarantee

101papers.com provides a system where students can request for money-back in case they cancel the order or in the rare instances of dissatisfaction. The refund policy adheres to the company’s term and conditions on money-back.

Read more

Zero-Plagiarism Guarantee

While providing the best professional essay writing services, we guarantee all our students of plagiarism-free papers. All papers produced by our professional academic writers are checked against all web resources and previously completed papers to avoid plagiarism.

Read more

Free Revision Policy

In our urge to provide the best professional essay writing services, we guarantee students of free revision policy. The free revision policy is a courtesy service where students can request for unlimited for their completed papers. We always aim at achieving 100% customer satisfaction rates. The free revision policy is one among many of our major advantages.

Read more

Privacy Policy

At 101papers.com, every student is entitled to total security. Our professional academic writers are always committed to protecting all private information of our customers. We do not share any personal information with third parties. Additionally, we provide safe systems for all online transactions.

Read more

Fair-Cooperation Guarantee

Working with us is the greatest step towards achieving all your academic goals. We always deliver the best professional essay writing services as promised. We, therefore, expect all students to work cooperatively with us, as we work towards achieving our goal, your satisfaction. This way, all services will be delivered accurately and on time.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency