# Capital Requirements and Depreciation Assignment

Option A
Option B
Option C

50% equity/50% Loan
Loan
Public Bond (A rating)

annual interest rate w/fees
3.00%
3.00%
3.75%

PV
5,500,000
11,000,000
11,000,000

term
15
15
20

FV
0
0
0

Given Information:
Capital Requirements and Depreciation: Use the data given below to calculate the following:
Calculate the total capital requirements for the listed assets
Calculate the annual depreciation and total depreciation for each item up through the end of its useful life.   For each year, also sum the total depreciation for ALL items.

Assumptions
For the number of pre-op beds, operating rooms, and post-op beds refer to your tab “Personnel Expenses” for the number of rooms that you calculated for 2022 (rounded up to the next whole number) – that is the number that you will need to build and equip to accommodate the planned growth for the ASC .
The pre-op and post-op room space will each be one large room with partitions for each patient. Due to the short pre and post-op times in an ASC, this is not unusual.
Assume straight line depreciation and no salvage value.
Building and equipment depreciation is recorded on the balance sheet as PP&E during construction, but the depreciation expense does not start until the building is put into use. Therefore, for 2019, record depreciation as 0. Because we anticipate a January 2020 start date, record an entire year of depreciation starting in 2020.
Loan and interest expenses : Use the data given below to calculate the following:
Part One- for EACH option:
Calculate the annual payment using the PMT function (hint: use “0” for “type”), and sum the total payments and calculate total interest expense over the life of the loan.
Write a 1-2 sentence analysis of which option you would choose based on having the lowest total interest expense and why.
Under Option A, 50% of the loan is being funding by equity (cash the hospital has on hand). That equity would otherwise be invested and earn investment income at a rate of 4%/year. Calculate the amount of interest income that the hospital will lose over the term of the loan by using their equity for financing. Hint: first calculate the total value of the investment, then subtract the initial investment to calculate the interest earned.
Write a 1-2 sentence analysis of which option you would choose now, based on having the lowest total interest expense and why.

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## Capital Requirements and Depreciation Assignment

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Option A
Option B
Option C

50% equity/50% Loan
Loan
Public Bond (A rating)

annual interest rate w/fees
3.00%
3.00%
3.75%

PV
5,500,000
11,000,000
11,000,000

term
15
15
20

FV
0
0
0

Given Information:
Capital Requirements and Depreciation: Use the data given below to calculate the following:
Calculate the total capital requirements for the listed assets
Calculate the annual depreciation and total depreciation for each item up through the end of its useful life.   For each year, also sum the total depreciation for ALL items.

Assumptions
For the number of pre-op beds, operating rooms, and post-op beds refer to your tab “Personnel Expenses” for the number of rooms that you calculated for 2022 (rounded up to the next whole number) – that is the number that you will need to build and equip to accommodate the planned growth for the ASC .
The pre-op and post-op room space will each be one large room with partitions for each patient. Due to the short pre and post-op times in an ASC, this is not unusual.
Assume straight line depreciation and no salvage value.
Building and equipment depreciation is recorded on the balance sheet as PP&E during construction, but the depreciation expense does not start until the building is put into use. Therefore, for 2019, record depreciation as 0. Because we anticipate a January 2020 start date, record an entire year of depreciation starting in 2020.
Loan and interest expenses : Use the data given below to calculate the following:
Part One- for EACH option:
Calculate the annual payment using the PMT function (hint: use “0” for “type”), and sum the total payments and calculate total interest expense over the life of the loan.
Write a 1-2 sentence analysis of which option you would choose based on having the lowest total interest expense and why.
Under Option A, 50% of the loan is being funding by equity (cash the hospital has on hand). That equity would otherwise be invested and earn investment income at a rate of 4%/year. Calculate the amount of interest income that the hospital will lose over the term of the loan by using their equity for financing. Hint: first calculate the total value of the investment, then subtract the initial investment to calculate the interest earned.
Write a 1-2 sentence analysis of which option you would choose now, based on having the lowest total interest expense and why.