Submitted by: Submitted by tbdiffey
Views: 250
Words: 1058
Pages: 5
Category: Business and Industry
Date Submitted: 11/28/2011 05:00 PM
PS # 4
Question 1:
a) Expected Net Benefits
E(NB) = E(B) – C
E(B) = Σ Pί . Bί
1) For Large Hospital:
E(B) = (200000x0.3) + (100000x0.5) – (120000x0.2)
= 60000 + 50000 - 24000
= 86000
E(NB) = 86000-46000 = $40000
E (NPVA)= [P1(t=zZB1(1+r)t -t=wWC1(1+r)t) +P2(t=zZB2(1+r)t -t=wWC2(1+r)t)+ (t=zZB3(1+r)t -t=wWC3(1+r)t)]
If we assume that the interest rate is 10 %, for example. So,
E (NPVA) = [0.3(t=110200000(1+0.1)t -46000) + 0.5(t=110100000(1+0.1)t -46000) + 0.2(t=110-120000(1+0.1)t -46000)]
E (NPVA) = $482,432.77
2) For Small Hospital:
E(B) = (0.3x90000) + (0.5X50000) – (0.2x20000)
= 27000 + 25000 - 4000
= 48000
E(NB) = 48000-46000 = $2000
E (NPVA)= [P1(t=zZB1(1+r)t -t=wWC1(1+r)t) +P2(t=zZB2(1+r)t -t=wWC2(1+r)t)+ (t=zZB3(1+r)t -t=wWC3(1+r)t)]
If we assume that the interest rate is 10 %, for example. So,
E (NPVA) = [0.3(t=11090000(1+0.1)t -46000) + 0.5(t=11050000(1+0.1)t -46000) + 0.2(t=110-20000(1+0.1)t -46000)]
E (NPVA) = $248,939.22
3) For No Hospital:
E(NB) = 0
E (NPVA) = 0
Variance: σ 2 = Σ P ( B1- B͡ )
Standard Deviation: σ = σ 2
Coefficient of Variation = σ 2E(NB)
Large Hospital:
σ 2Large Hospital = 0.3(200000-86000)2 + 0.5(100000-86000)2 + 0.2(-120000-86000)2
= 38988000000 + 98000000 + 84872000000
=12484000000
σ Large Hospital = 12484000000 = 111731.82
Coefficient of Variation Large Hospital = 1248400000086000 = 145162.8
Small Hospital:
σ 2Small Hospital = 0.3(90000-48000)2 + 0.5(50000-48000)2 + 0.2(-20000-48000)2
= 529200000 + 2000000 + 924800000
= 1456000000
σ Small Hospital = 1456000000 = 38157
Coefficient of Variation Small Hospital = 145600000048000 = 30333
Note: Since the cost is fixed for both alternatives, I have chosen to execlude it when calculating the Coefficient of Variation....