Text book Louis C. Gapenski – Healthcare Finance, An Introduction to Accounting and Financiall Management – 5^th edition.

Please show all calculations and work.

15.1 The managers of Merton Medical Clinic are analyzing a proposed project. The project’s most likely NPV is $120,000, but as evidenced by the following NPV distribution, there is considerable risk involved:

Probability                                                    NPV

0.05                                                            ($700,000)

0.20                                                              (250,000)

0.50                                                               120,000

0.20                                                               200,000

0.05                                                               300,000

a What are the project’s expected NPV and standard deviation of NPV

b Should the base case analysis use the most likely NPV or the expected NPV? Explain your answer. 

16.1  On a typical day, Park Place Clinic writes $1,000 in checks. It generally takes four days for those checks to clear. Each day the clinic typically receives $1,000 in checks that take three days to clear. What is the clinic’s average net float?

16.4  Langley Clinics, Inc., buys $400,000 in medical supplies each year (at gross prices) from its major supplier, Consolidated Services, which offers Langley terms of 2.5/10, net 45. Currently, Langley is paying the supplier the full amount due on Day 45, but it is considering taking the discount, paying on Day 10, and replacing the trade credit with a bank loan that has a 10 percent annual cost.

 a.  What is the amount of free trade credit that Langley obtains from Consolidated Services? (Assume 360 days per year throughout this problem.)

 b. What is the amount of costly trade credit?

 c. What is the approximate annual cost of the costly trade credit?