Time Value of Money

You are the chief financial officer (CFO) at a community hospital. One of the comments that has come back from patient surveys is the need for a commercial 24-hour pharmacy within the hospital. In this way, patients or their families will be able to fill prescriptions and begin taking ordered medication right away instead of waiting until the following day. The chief executive officer (CEO) wants you to create a proposal for the first 3 months of operation utilizing time value of money tools for the development of this new revenue-generating department. The following points must be covered in your proposal: Include and discuss the need for working capital to include 2 months of startup drug inventory, vendor financing arrangements, personnel costs including salaries and benefits, renovations, disposable supplies, and cost of equipment Provide 2 viable options to measure the rate of return to optimize financial performance of the department based on time value principles with rationale and justification. Include a profitability analysis for 3 years. Include a schedule of assumptions for your proposal. What questions might the board ask regarding feasibility of this proposal? How might current changes in federal, state, and local policies influence decisions to be made?

Time Value of Money

Required/Case Assignment/SLP Reading
Basic concepts of present and future value:
Do not fixate on just the formulas. While you need to know the formulas for the assignments, you also need to understand the logic and intuition behind the formulas. The following links are important not only for the formulas but also to help you understand the material.
Econedlink.org (2012). The time value of money. Retrieved May 2012 from http://www.econedlink.org/lessons/index.cfm?lesson=EM37
Studyfinance.com (2012). Time value of money: Self paced overview. Retrieved May 2012 from http://www.studyfinance.com/lectures/timevalue/index.mv
Biger, N. (2008). Explanation of present values and net present values. Retrieved May 2012 from https://cdad.trident.edu/Presentation.aspx?course=56&term=92&presentation=150
Harper, D. (2009). Corporate Bonds: An introduction to credit risk. Retrieved May 2012 from http://www.investopedia.com/articles/03/110503.asp#axzz1toL7PDrX
For the following link, check out the sections on present and future values of annuities. These sections will help you with the Case Assignment:
Getobjects.com (2002). Future value. Retrieved May 2012 from http://www.getobjects.com/Components/Finance/TVM/fv.html
You might also want to read Chapter 8 of the following textbook:
Ramagopal, C. (2008). Financial management. New Age International.
The following videos are also useful to understand and learn present value of money:
Khanacademy.org (2012). Introduction to present value: A choice between money now and money later. Retrieved May 2012 from http://www.khanacademy.org/video/introduction-to-present-value?playlist=Finance
Khanacademy.org (2012). Present value 2: More choices as to when you get your money. Retrieved May 2012 from http://www.khanacademy.org/video/present-value-2?playlist=Finance
Khanacademy.org (2012). Present value 3: What happens when we change the discount rate? Retrieved May 2012 from http://www.khanacademy.org/video/present-value-3?playlist=Finance
Khanacademy.org (2012). Present value 4 (and discounted cash flow): Let’s change the discount rates depending on how far out the payments are. Retrieved May 2012 from http://www.khanacademy.org/video/present-value-4–and-discounted-cash-flow?playlist=Finance