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1. A hospital is planning to invest in a new MRI machine that costs $2
million and has an expected useful life of 10 years. The hospital expects
to generate $300,000 in annual net cash flows from the machine. The
hospital's cost of capital is 8%. What is the net present value (NPV) of
the investment?
a) $519,168
b) $800,000
c) $1,481,832
d) $2,000,000
Answer: A. NPV = -$2,000,000 + ($300,000 / 0.08) * (1 - 1 / 1.08^10) =
$519,168. NPV is the difference between the present value of cash
inflows and the present value of cash outflows. A positive NPV indicates
that the investment is profitable and should be accepted.
2. A nurse manager is responsible for allocating the budget for her
department. She has to decide how to allocate $100,000 among four
activities: staff training, equipment maintenance, quality improvement,
and patient satisfaction. She uses a scoring model to rank each activity
based on its importance and urgency. The scores are shown in the table
below.
| Activity | Importance | Urgency | Score |
|-----------------|------------|---------|-------|
| Staff training | 10 | 8 | 80 |
| Equipment maintenance | 9 | 9 | 81 |
| Quality improvement | 8 | 7 | 56 |
| Patient satisfaction | 7 | 6 | 42 |
How much money should she allocate to each activity?
a) $40,000 for staff training, $41,000 for equipment maintenance,
$10,000 for quality improvement, and $9,000 for patient satisfaction.
b) $32,258 for staff training, $32,742 for equipment maintenance,
$17,742 for quality improvement, and $17,258 for patient satisfaction.
c) $25,806 for staff training, $26,129 for equipment maintenance,Â
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