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(a) Explain the concept of Net Present Value (NPV) and include a description of how it is calculated.[5 marks]

(b) You are asked to help prepare a bid, under the Private Finance Initiative (PFI)to develop, install and maintain for 4 years, a patient information system for a hospital. The hospital Trust will pay the bid amount in 5 equal annual payments at the beginning of each year. Your development team estimates development and installation will cost£1M and maintenance£100k per annum. Which of the following bids:£1500k,£1600k or£1700k should your team submit, assuming a discount rate of 10% per annum? Show your working.[10 marks]

(c) Draw up a cash flow for this project. How much funding is needed assuming a loan interest rate of 10% per annum?[5 marks]

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