Q1 University of Virginia Medical Center Long Term Acute Care Hospital
Study the above analysis carefully, examining the inputs, outputs, and formulas used to do the calculations.
Mulroney did not use working capital cash flows in her original analysis. The analysis above includes incremental investment in working capital. Discuss why she was either correct or incorrect not to include them.
Mulroney did not use working capital cash flows in order to show the unlevered cash flow or cashflow without financing. She omitted the interest expense without net working capital. Mulroney cannot correctly estimate the net working capital. The net working capital rises with a new project such as acute care hospital since increased volume of business will lead to increase in revenues. Thus increase in revenue will increase net working capital as the NPV is $5,687 since does not include net working capital, it is much less than NPV with net working capital which is $10425
