Trust Board Febuary 2010 - Sandwell & West Birmingham Hospitals

SWBTB (2/10) 045 (a)
10. INVESTMENT APPRAISAL
Table 10: Investment Appraisal
Do
Minimum OPTION 1 OPTION 2 OPTION 3
£'000 £'000 £'000 £'000
4 Year Period
Income 647 771 771 1,579
Expenditure (1,317) 603 603 (304)
TOTAL SURPLUS/(DEFICIT) - 670
1,374 1,374 1,274
INVESTMENT APPRAISAL SUMMARY
Average Annual Deficit over the 4 year period (134) 275 275 255
CAPITAL INVESTMENT 3,356 1,851 1,851 1,851
Internal Rate of Return 15% 15% 14%
Annual Depreciation per annum (233) (130) (130) (130)
Payback Period in Years (14) (14) (14) (14)
Discounted Cash Flow (12,416) (7,990) (7,990) (8,268)
Ranking 3 1 1 2
NB
Where IRR is negative the appraisal assumes no actual rate of return
Depreciation payback of proposed capital expenditure is circa 14 years.
Options 1-3 generate a technical rate which reduces the Maternity trading SLR deficit proportionately
per annum. The Do Minimum option generates no rate of return as overall costs exceed yet further
achievable income levels.
Discounted cash flow techniques have been applied to determine the future value of cash flows and
options have been ranked in terms of the lowest NPV generates the best economic solution.
The table below ranks all options in terms of their economic and affordability score.
The ranked financial assessment headed “NPV Over Period” demonstrates the discounted cash flow
result over the four year lifespan. The lowest Net Present Value of all the options is 1&2 equally.
The ranking headed “I&E Impact” demonstrates the overall SLR trading impact on Maternity services
resulting from these changes. This again demonstrates Options 1&2 are the most advantageous,
although the margin between them and Option 3 is minimal. This assessment includes taking the benefit
of capital charge savings.
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