08 Jun Question Unit9Assignment: CapitalBudgeting
Question
Unit9Assignment:
CapitalBudgeting
Unit outcomes addressed in thisAssignment:
· Describe the role of financial analysis in health care financialdecisions.
· Discuss the key elements in breakevenanalysis.
· Explain how opportunity relates to costprinciples.
Course outcome addressed in thisAssignment:
HS440-4: Utilize financial analysis to inform managementdecisions.
GEL-2.3:Solve real-world problems using mathematicalskills.
Instructions
For this Assignment, you will complete a cash flow analysis for a new MRIservice forthe physician’s network. Based upon your analysis, you will recommend whether the newMRI service is a sound financial decision for the physician’snetwork.
Consider the followinginformation:
The estimated average is $1000 per scan. 25% of this average is expected to be loston discounts to payers, charity care, andlosses.
Each scan will cost the physician’s network $40 to insupplies
The MRIservice is expected to operate 50 weeks per year. 1.5 full-time employees willbe required with an annual labor cost of $70,000, includingbenefits.
There are no increased overhead costs associated with the opening as the physician’snetworkhas an existing building that is currentlyvacant.
Annually, the MRImachine requires $125,000 in maintenancecosts.
The long-term plan is to utilize this MRI system for five years. At this end of this period,the physician’s network will sell the MRI for salvage for $750,000 (deducting any removalcosts).The inflation rate is averaged at 5% for the period. This inflation rate is expected to affectall revenues and costsequally.
The profitability measures are: Net Present Value = $83,478 with an internal rate of returnequal to$11.1%.
Complete a cash flow analysis utilizing the information above and below to create yourCash FlowChart.
Assume the following in youranalysis: A MRISystem will cost: $2.5million
Delivery, Installation and site preparation will cost:$500,000
Payer
# ofscans perweek
Chargeper scan
Total Charges
Basisof Payment
Net Payment perScan
Total Payments
Medicare
10
$1000
$10,000
Fixedfee
$740
$7,400
Medicaid
5
$1000
$5,000
Fixedfee
$700
$3,50
Private Insurance
5
$1000
$5,000
Fullcharge
$1000
$5,000
BlueCross
2
$1000
$2,000
Percentage of Charge
$840
$1,680
Managed Care
4
$1000
$4,000
Percentage of Charge
$750
$2,000
Self-Pay
1
1,000
$1,000
FullCharge
$110
$110
Total
27
$27,000
$19,690
Average
$1,000
$750
To present your analysis, the physician’s network has asked you to prepare a report.Thisreport will be in two parts. The first section will be a written report (in essay format) that includes an introduction of what will be included in the report, a detailed summary of the cash flowanalysis, and a determination by you as to whether you recommend that the new MRI services to bea sound financial decision. The second portion of the report will be your cash flow analysis inthe form of aspreadsheet.
For the report to be effective, it should be no less than five pages total, includingreferences.
Please be sure to download the file “Writing Center Resources” from Doc Sharing to assistyouwith meeting APA expectations for writtenassignments.
Submitting YourWork
For directions on how to submit your work and review your graded assignments, refer tothe Dropbox Guide found on the Academic Tools tab. Make sure that you save a copy ofyour submittedwork.
Unit 9 Assignment Grading Rubric = 325points
AssignmentRequirements
Points possible
Points earnedby student
Report includes anintroduction
0-25
Report includes a detailed summary of the cash flow analysis
0-75
Report includes a decision summary (recommendation or declination) based off of the cash flowanalysis
0-75
Report includes a conclusion paragraph summarizing thewritten portion
0-50
Report includes a spreadsheet cash flowanalysis
0-100
Total (Sum of allpoints)
Points deducted for spelling, grammar, and/or APAerrors. (See Writing Deductions Rubric in DocSharing)
Adjusted totalpoints
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