Project Analysis Case Study
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Complete Case 20: National Rehabilitation Centers:
Read Case 20 (pp. 143-147) and update spreadsheets based on reading
Assist with providing ideas for writing a case review that addresses a staged entry analysis that includes quantitative and qualitative factors, conclusions and recommendations.
AMERICAN REHABILITATION CENTERS
Staged Entry Analysis
This case is designed to give further insight into the capital budgeting decision process. It
focuses on the timing and relevancy of cash flows, the use of decision trees, abandonment,
value, and the advantages and disadvantages of staged entry.
The model calculates NPV, IRR, MIRR, payback, and discounted payback on the basis of
input data for two stages of a project. Note that the model extends to Column K.
The model consists of a complete base case analysis--no changes need to be made
to the existing MODEL-GENERATED DATA section. However, all values in the student
version INPUT DATA section have been replaced with zeros. Thus, students must determine
the appropriate input values and enter them into the model. These cells are colored red.
When this is done, any error cells will be corrected and the base case solution will appear.
However, students must create their own graphics (charts) as needed to present their results.
Note that the model contains a second sheet to help with the risk calculations. Here, users
enter the NPVs and joint probabilities of each branch of the decision tree and the model
calculates expected NPV, variance, standard deviation, and coefficient of variation.
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Solution Summary
The solution discusses the project analysis case study.
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American Rehabilitation Centers: Staged Entry Analysis
Qualitative Factors:
There are two proposals related with the expansion. One is proposal A and the other is Proposal B. Proposal A is the low cost alternative (roughly $400 million) as compared to Proposal B ($570 million). Although Proposal A has capabilities to save cost an increase the return on investment but at the same time it has high risk of failure if things go wrong. Proposal B has 2 stages, stage one is a trial program covering only one of nine regions of ARC that will offer sports medicine service. If the expectation from stage 1 is met the company would enter in stage 2 covering rest of the regions. This indicates that Proposal B has ...
Education
- MBA, Indian Institute of Finance
- Bsc, Madras University
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