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Cash Flows Capital Budgeting and Cost of Capital, Cash Flows and…
Cash Flows Capital Budgeting and Cost of Capital
Capital Budgeting
Processes and
Techniques
Methods
NPV
Formula
Acceptance Rule
Example
IRR
Formula
Acceptane Rule
Problems
Unusual Cash Flow Patterns
Ranking competing projects
Timing Problems
Scale problem
Example
Cash Flow Patterns
Typical investment
Unusual Investment
Graph
Cost of Capital
and Project Risk
Using the data of video 2
We have to recalculate the NPV, making some assumptions
Assuming 750 patients per year
Contribution Margin = $1,915
NPV = $560,270
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To attract more patients, they have to reduce the price of the lasik.
New Price: $2,700 Patient Expenses: $1,085
↑Price by $1 - ↑NPV $2,467
Discount Rate: 15%
Cash Flows and Capital Budgeting
Exercise
Lasik surgery center
Cost of Equipment
Additional Costs
Expense per Patient
Revenue per Patient
$3000
Assuming 1000 patients per year
Total Revenue: $3,000,000 Patient Expenses: $1,085,000
Cash Flow 0
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Cash Flow 1
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Cash Flow 3
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Cash Flow 2
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Cash Flow 4
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Cash Flow 5
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Cash Flow 6
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