Finance Questions

Sheet1

$ – 0 $ – 0 $ – 0 $ – 0

$ 3,510 $ 3,510 $ 3,510 $ 3,510

	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Nurse Triage Salaries	$ 523,800	$ 549,990	$ 577,490	$ 606,364	$ 636,682	$ 668,516
Forecasted ER Cost Reductions	$ 400,000	$ 800,000	$ 848,000	$ 900,577	$ 955,512	$ 1,013,798
New IT Specialist’s Salary	$ 150,000	$ 154,500	$ 159,135	$ 163,909	$ 168,826	$ 173,891
Costs of Facility Renovations	$ 30,000					$ – 0
Necessary Capital Equipment Purchases	$ 117,000					$ 3,510
Net Cash Flow:
Present Values of Net Cash Flows:
Net Present Value:
IRR:
MIRR:
Payback Period (# years):
Discounted Payback Period (# years):
Questions:
1.    Determine the cash inflows and outflows for each year.
2.   Evaluate the capital project by calculating the following metrics:
a.    net present value (NPV)
b.    internal rate of return (IRR)
c.    modified internal rate of return (MIRR)
d.    payback period
e.    discounted payback period
3. Indicate whether the project is acceptable, assuming Jiranna has a corporate policy of not accepting projects that take more than 3.5 years to pay for themselves, and assuming an 11% cost of capital.

Capital Project Case Study, Part 1

This case study considers the expected costs and benefits to a managed care organization resulting from a decision to design a centralized nurse triage line. This triage line would assist routine primary care patients to provide self-care and/or seek urgent care in lieu of seeking more expensive care after-hours in the emergency room.

Summary

Jiranna Healthcare owns and operates a 268-bed hospital in the San Jose area. The hospital is Jiranna Healthcare’s main facility and is home to more than 80 on-site specialty and surgery clinics, employing over 5,000 staff. In addition to the main hospital, Jiranna Healthcare has 18 satellite clinics, containing primary care services such as pediatrics, family medicine, and geriatric health. These facilities (hospital plus outlying clinics) serve a total enrollee population of 97,000.

Currently, Jiranna Healthcare’s centralized call center schedules primary care appointments and handles an average of 1,500 to 2,000 calls daily with a staff of 20. Patients routinely have difficulty obtaining access to urgent or acute care (primary care) in a timely fashion. Additionally, the majority of Jiranna Healthcare’s primary care centers are unable to meet access standards in three out of four cases. These access issues have a secondary effect on the call center, which experiences a much higher call rate because members have to call back multiple times to find available appointments. The existing process leads to overutilization of emergency departments for urgent care and primary care concerns. In addition, patient satisfaction has steadily declined as a result of the continued lack of appointment availability.

To address this problem, there is a proposal to implement a centralized nurse triage line, an off-site phone center that would be staffed by registered nurses with a multitude of specialties (including ER nurses, critical care, surgical, and even some nurse practitioners). These nurses are able to offer callers medical advice encompassing the treatment of fevers, wound care, and emergent conditions such as chest pain. The nurses are trained to triage conditions to the appropriate level of care be that at home, at an urgent care center, or at an emergency department.

The major cost impact is the increased salary requirement for the phone center staff, which will entail approximately 33 multi-discipline employees, based on workload and enrollment data. Additional elements of the proposal include hiring an IT specialist to manage the triage line’s computer system, and facility renovations. The main benefit of this proposal is projected cost reductions in patient care as a result of moving primary care out of the expensive emergency-room setting.

Assignment

The Capital Project Case Study, Part 2 spreadsheet provides cash flow data (costs and benefits) for the proposal. Download and save this Excel spreadsheet, and use the information provided to complete the following:

1. Determine the cash inflows and outflows for each year.

2. Evaluate the capital project by calculating the following metrics:

a. net present value (NPV)

b. internal rate of return (IRR)

c. modified internal rate of return (MIRR)

d. payback period

e. discounted payback period

3. Indicate whether the project is acceptable, assuming Jiranna has a corporate policy of not accepting projects that take more than 3.5 years to pay for themselves, and assuming an 11% cost of capital.

Laureate Education, Inc. 1