A surgery center specializes in high-risk cardiovascular surgery. The center needs to forecast its profitability over the next three years to plan for capital growth projects. For the first year, the hospital anticipates serving 1,400 patients, which is expected to grow by 9% per year. Based on current reimbursement formulas, each patient provides an average billing of $120,000, which will grow by 3% each year. However, because of managed care, the center collects only 25% of billings. Variable costs for supplies and drugs are calculated to be 10% of billings. Fixed costs for salaries, utilities, and so on will amount to $20,000,000 in the first year and are assumed to increase by 6% per year. Develop a spreadsheet model to predict the net present value of profit over the next three years. Use a discount rate of 4%.

A surgery center specializes in high-risk cardiovascular surgery. The center needs to forecast its profitability over the next three years to plan for capital growth projects. For the first year, the hospital anticipates serving 1,400 patients, which is expected to grow by 9% per year. Based on current reimbursement formulas, each patient provides an average billing of $120,000, which will grow by 3% each year. However, because of managed care, the center collects only 25% of billings. Variable costs for supplies and drugs are calculated to be 10% of billings. Fixed costs for salaries, utilities, and so on will amount to $20,000,000 in the first year and are assumed to increase by 6% per year. Develop a spreadsheet model to predict the net present value of profit over the next three years. Use a discount rate of 4%.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A surgery center specializes in high-risk cardiovascular surgery. The center needs to forecast its profitability over the next three years to plan for capital growth projects. For the first year, the hospital anticipates serving 1,300 patients, which is expected to grow by 9% per year. Based on current reimbursement formulas, each patient provides an average billing of $125,000, which will grow by 2% each year. However, because of managed care, the center collects only 25% of billings. Variable costs for supplies and drugs are calculated to be 10% of billings. Fixed costs for salaries, utilities, and so on will amount to $20,000,000 in the first year and are assumed to increase by 5% per year. Develop a spreadsheet model to predict the net present value of profit over the next three years. Use a discount rate of 4%. (Type whole numbers.) A 1 23456 7 Growth Rates Year 1 B Collection % Variable Cost% Discount Rate % Patients Served C % % % % Average Billing $ D Collected Amount E…
ABC Medical has invested RM2 million in a Health Diagnostic Support system. To maintain the system, the hospital has to pay the vendor RM10,000 monthly for monitoring and support activities. The system is projected to increase the hospital revenue by RM50,000 monthly. If the system is to be utilized by the hospital for 10 years, calculate the rate of return of the investment using ROI.
MaxiCare Corporation, a not-for-profit organization, specializes in health care for senior citizens. Management is considering whether to expand operations by opening a new chain of care centers in the inner city of large metropolitan areas. For a new facility, initial cash outlays for lease, renovations, net working capital, training, and other costs are expected to be about $16 million. The corporation expects the cash inflows of each new facility in its first year of operation to equal the initial investment outlay for the facility. Net cash inflows are expected to increase to $2.5 million in each of years 2 and 3; $2.5 million in year 4; and $3.0 million in each of years 5 through 10. The lease agreement for the facility will expire at the end of year 10, and MaxiCare expects the cost to close a facility will pretty much exhaust all cash proceeds from the disposal. Cost of capital for MaxiCare is estimated as 12%. Assume that all cash flows occur at year end. Required: 1. Compute…
The hospital is considering the purchase of imaging equipment worth $25,000 to improve its visual capture results, and improve outcomes. The operating costs will be reduced by $7,000 per year. The computer has an estimated life expectancy of 5 years, and an estimated salvage value of $5,000. What is the profitability index if the discount rate is 8%. Ignore reimbursement considerations.
A state department of health is considering a public awareness campaign to encourage vaccination. It determines that the cost of this campaign would be $740,000 per year for the next 6 years. It estimates that the campaign would reduce rates of illness and communicable disease. At the end of the first year of the campaign, the resulting savings would be $1,350,000; the savings would decrease by $120,000 each of the following 5 years. Assuming a discounting factor of 8%, compute the benefit cost ratio. Click here to access the TVM Factor Table calculator. Carry all interim calculations to 5 decimal places and then round your final answer to two decimal places. The tolerance is ±0.01.
A state department of health is considering a public awareness campaign to encourage vaccination. It determines that the cost of this campaign would be $750,000 per year for the next 6 years. It estimates that the campaign would reduce rates of illness and communicable disease. At the end of the first year of the campaign, the resulting savings would be $1,040,000; the savings would decrease by $80,000 each of the following 5 years. Assuming a discounting factor of 8%, compute the benefit cost ratio. Carry all interim calculations to 5 decimal places and them round your final answer to two decimal places.
A hospital is consideving Purchasing a new medical dispensing Cabinet that will cost $200,000. It believes that this cabinet will reduce the amount of labor required to track and administer medications and will also result in fewer expired medicines. It estimates the medical dispensing cabinet will result in a savings of $30000 at the end of year one and that the Savings will increase by $5000 per year for each of the I years that the machine will be used. What is the IRR of this investment? If the hospitals is 12%, Should they inveot in this cabinet? MARR
Consider a proposal to enhance the vision system used by a postal service to sort mail. The new system is estimated to cost $1.1 million and will incur an additiona $200,000 per year in maintenance costs. The system will produce annual savings of $500,000 each year (primarily by decreasing the percentage of misdirected mail and reducing the amount of mail that must be sorted manually). The MARR is 10% per year, and the study period is five years at which time the system will be technologically obsolete (worthless). The PW of this proposal is PW(10%) = −$1,100,000 + ($500,000 − $200,000)(P/A, 10%, 5) = $37,236. Determine how sensitive the decision to invest in the system is to the estimates of investment cost and annual savings.
An engineering firm estimates that its cost for employer sponsored health insurance will be $750,000 next year and increase at 11% per year for the next 5 years. The company CFO wants to budget a uniform amount each year to cover these costs. If the firm's rate of return is 6% per year, how much should be invested each year for employer sponsored health care? Express your answer in $ to the nearest $1,000.
South Hampton University is preparing its budget for the upcoming academic year. This is a specialised private university that charges fees for all degree courses. Currently, 30,000 students are enrolled on campus. However, the university is forecasting a 5 per cent growth in student numbers in the coming year, despite an increase in fees to $3,000 per subject. The following additional information has been gathered from an examination of university records and conversations with university managers: • South Hampton is planning to award scholarships to 200 students, which will cover their fees. • The average class has 80 students, and the typical student takes 4 subjects per semester. South Hampton operates 2 semesters per year. • The average academic staff salary is $120,000 per annum including on-costs. • South Hampton's academic staff are evaluated on the basis of teaching, research, administration and professional/community service. Each of the academic staff teaches the equivalent…
MaxiCare Corporation, a not-for-profit organization, specializes in health care for senior citizens. Management is considering whether to expand operations by opening a new chain of care centers in the inner city of large metropolitan areas. For a new facility, initial cash outlays for lease, renovations, net working capital, training, and other costs are expected to be about $15 million. The corporation expects the cash inflows of each new facility in Year 1 to equal zero. Net cash inflows are expected to increase to $1 million in each of years 2 and 3; $2.5 million in year 4; and $3 million in each of years 5 through 10. The lease agreement for the facility will expire at the end of year 10, and MaxiCare expects the cost to close a facility will pretty much exhaust all cash proceeds from the disposal. Cost of capital for MaxiCare is estimated as 12%. Assume that all cash flows occur at year end. Required: 1. Compute (using the built-in NPV function in Excel) the net present value…
MaxiCare Corporation, a not-for-profit organization, specializes in health care for senior citizens. Management is considering whether to expand operations by opening a new chain of care centers in the inner city of large metropolitan areas. For a new facility, initial cash outlays for lease, renovations, net working capital, training, and other costs are expected to be about $18 million. The corporation expects the cash inflows of each new facility in Year 1 to equal zero. Net cash inflows are expected to increase to $5.5 million in each of years 2 and 3; $2.5 million in year 4; and $3.0 million in each of years 5 through 10. The lease agreement for the facility will expire at the end of year 10, and MaxiCare expects the cost to close a facility will pretty much exhaust all cash proceeds from the disposal. Cost of capital for MaxiCare is estimated as 12%. Assume that all cash flows occur at year end. Required: 1. Compute (using the built-in NPV function in Excel) the net present value…

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