WHAT IS THE PROJECT’S PAYBACK, NPV, AND IRR? INTERPRET EACH OF THESE MEASURES.Twin Falls’ management is currently evaluating a proposed ambulatory (outpatient) surgery center.Twin Falls Community Hospital is a 250-bed, not-for-profit hospital locatedin the city of Twin Falls, the largest city in Idaho’s Magic Valley regionand the seventh largest in the state. The hospital was founded in 1972 andtoday is acknowledged to be one of the leading healthcare providers in thearea.Twin Falls’ management is currently evaluating a proposed ambulatory (outpatient) surgery center. Over 80 percent of all outpatient surgery is performed by specialists in gastroenterology, gynecology, ophthalmology, otolaryngology, orthopedics, plastic surgery, and urology. Ambulatory surgery requires an average of about one and one-half hours; minor procedures take about one hour or less, and major procedures take about two or more hours. About 60 percent of the procedures are performed under general anesthesia, 30 percent under local anesthesia, and 10 percent under regional or spinal anesthesia. In general, operating rooms are built in pairs so that a patient can be prepped in one room while the surgeon is completing a procedure in the other room.The outpatient surgery market has experienced significant growth since the first ambulatory surgery center opened in 1970. This growth has been fueled by three factors. First, rapid advancements in technology have enabled many procedures that were historically performed in inpatient surgical suites to be switched to outpatient settings. This shift was caused mainly by advances in laser, laparoscopic, endoscopic, and arthroscopic technologies. Second, Medicare has been aggressive in approving new minimally invasive surgery techniques, so the number of Medicare patients utilizing outpatient surgery services has grown substantially. Finally, patients prefer outpatient surgeries because they are more convenient, and third-party payers prefer them because they are less costly.These factors have led to a situation in which the number of inpatientsurgeries has grown little (if at all) in recent years while the number ofoutpatient procedures has been growing at over 10 percent annually and nowtotals about 22 million a year. Rapid growth in the number of outpatientsurgeries has been accompanied by a corresponding growth in the number ofoutpatient surgical facilities. The number currently stands at about 5,000nationwide, so competition in many areas has become intense. Somewhatsurprisingly, there is no outpatient surgery center in the Twin Falls area,although there have been rumors that local physicians are exploring thefeasibility of a physician-owned facility.1The hospital currently owns a parcel of land that is a perfect location forthe surgery center. The land was purchased five years ago for $350,000, andlast year the hospital spent (and expensed for tax purposes) $25,000 to clearthe land and put in sewer and utility lines. If sold in today’s market, theland would bring in $500,000, net of realtor commissions and fees. Landprices have been extremely volatile, so the hospital’s standard procedure isto assume a salvage value equal to the current value of the land.The surgery center building, which will house four operating suites, wouldcost $5 million and the equipment would cost an additional $5 million, for atotal of $10 million. The project will probably have a long life, but thehospital typically assumes a five-year life in its capital budgeting analysesand then approximates the value of the cash flows beyond Year 5 by includinga terminal, or salvage, value in the analysis. To estimate the terminalvalue, the hospital typically uses the market value of the building andequipment after five years, which for this project is estimated to be $5million, excluding the land value.