munity Hospital is considering building an ambulatory surgery center. Which of t
ID: 2797820 • Letter: M
Question
munity Hospital is considering building an ambulatory surgery center. Which of the following opportunity cost rates would be most appropriate for discounting the project's future cash flows? O A. The expected rate of return on a bank CD O B. The expected rate of return on a municipal bond O C. The expected rate of return on the stock of SurgiCare Corporation, a for-profit company that operates a large number of freestanding ambulatory surgery centers O D. The expected rate of return on the stock of Skilled Healthcare Group, a for-profit company that operates a large number of nursing homes and assisted living centers O E. The expected rate of return on Medcath Corporation, a for-profit company that operates a large number of cardiac specialty hospitals Reset SelectionExplanation / Answer
a)Oakdale community hospital is considering building an ambulatory surgery centre. The opportunity cost rates most appropriate for discounting project's future cash flows- The expected rate of return on the stock of surgicare corporation a for profit company that operates a large number of freestanding ambulatory surgery centres.
b)Rate of interest=5%
By using Rule of 72, by dividing 72 by the annual rate of return, Investor can get the no. of years it would take to double their money.
=72/0.05=14.4 years. At rate of return of 5% it would take approximately 14.4 years for the investment to double.
C)As the discount rate applied to the future value lumpsum increases the Present value Decreases.
PV= FV/(1+r)^n. Since the denominator is increasing in the formula, the net result will be the present value will decrease
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