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CASE STUDY ON INVESTMENT APPRAISAL You have Just been employed as a finance analyst by a large company specilalizing in medical services Internationally. This company is the parent company for several subsidlaries in Europe and In Middle East, and Its maln business operation is to invest in building and operating new hospltals and to provide top of the range health care to Its customers. As the company has been very successtul so far, It contemplates expanding Its business to country Z. The company has identifled important health market opportunitles In that country, mainly due to the poor state of the public health services in that country. The General Finance Manager of the company has assigned you with the task of estimating whether an expansion of the company's operations in that country would contributevalue to the parent company. The company has 1000 hares autstanding. The company's owners are long-term investors and are only Interested in value creation by each investment they undertake. After you were formally assigned the task of assessing the profitability of this Investment, you started collecting important data and information of the economic parameters of the project. You first obtain an estimate cost requlred at the initiation of the investment. That cost is expected to be 3000$ for the purchase of the building and the medical equipment and Infrastructure requlred for the undisrupted operation of the hospital. The company wants to concentrate on the first 5 years of the operation of the hospltal, malnly because that the economic life of the medical equlpment purchased. Importantly, the company wants to remain on the far-front of the technology of medical equlpment and thus, puts a maximum of 5 years in the economic ife of that equipment. This technology Involves new applications in robotic medicine and remote surgical operations. The accounting treatment of this equipment will involve a straight-line appreciation to a zero accounting value at the end of year 5. However, the company expects to sell the equlpment at the end of that year, estimating to recelve a market value of $100. Based on the demand function estimated for medical services in that country, you estimate for each of the next 5 years the expected operating revenue will be $1500. Of course, this amount is Just an estimate and you well-understand that errors always come along with estimates, especlally when these estimates refer for long-term. Then you turn Into estimating the operating costs of the new project. Based on the experience of similar projects that the company has undertaken, you estimate the operating cost per year to be $S00. The country where the investment is expected to take place imposes taxes on revenues and on the accounting profit from selling assets and equipment. The tax rate currently stands at 25% After you have completed the above estimation on operating costs and revenues, you ask yourself: What about if the company, Instead of using the Inltial amount of $3000, buys shares If the required rate of return is 15%, do you recommend accepting the project using the following methods? 1. NPV 2. IRR 3. Payback period

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