Other Essay Example | Topics and Well Written Essays - 1000 words - 3

Other - Essay Example a. Cash flow estimation: This step involves determining the annual net operating flows that are expected when a project becomes operational, the outlays of investment, and the cash outflows that will be associated with the project upon its termination. A lot of variables are involved in the determination of cash flow forecast and as such requires the participation of several individual and departments of an organization. To a greater number of health care organizations, this step would be the most complicated and demanding one as it is always difficult to determine the projections of costs and revenues of large and complex projects accurately. The other rationale for qualifying this stage as the most challenging to the organizations is that it usually hard to overstate the difficulty or importance of correctly determining the forecast for the project’s cash flows (Berger, 2008). Consequently, this stage requires proper analysis, not unless the firm’s costs may outweigh the revenues thus, likely to result into cannibalization. In effect, the firm may underestimate the true profitability of the project by not recognizing its strategic value which is the value of future opportunities of investment that the health care firm may undertake only if the current project is accepted. b. Conducting a replacement analysis: Replacement analysis deals with replacement decisions, which are made when considering a new asset that replaces and old asset. The analysis of the replacement cash flow is complex and so might turn a challenge to the health care organizations. When compared to the expansion decision, the health care organization may find that the replacement is more complex as it must consider all the cash flows from the existing asset. By the organization considering its operating flows, it shall find that the incremental flows are the cash flows expected from the replacement assets less