Finance for Health Care- Capital Budgeting

Capital Budgeting

Instructions

For this Assignment, you will complete a cash flow analysis for a new MRI service for the physician’s network. Based upon your analysis, you will recommend whether the new MRI service is a sound financial decision for the physician’s network.

No plagrism

Consider the following information:

The estimated average is $1000 per scan. 25% of this average is expected to be lost on discounts to payers, charity care, and losses.

Each scan will cost the physician’s network $40 to in supplies

The MRI service is expected to operate 50 weeks per year. 1.5 full-time employees will be required with an annual labor cost of $70,000, including benefits.

There are no increased overhead costs associated with the opening as the physician’s network has an existing building that is currently vacant.

Annually, the MRI machine requires $125,000 in maintenance costs.

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 removal costs). The inflation rate is averaged at 5% for the period. This inflation rate is expected to affect all revenues and costs equally.

The profitability measures are: Net Present Value = $83,478 with an internal rate of return equal to $11.1%.

Complete a cash flow analysis utilizing the information above and below to create your Cash Flow Chart.

Assume the following in your analysis:

A MRI System will cost: $2.5 million

Delivery, Installation and site preparation will cost: $500,000

To present your analysis, the physician’s network has asked you to prepare a report. This report 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 flow analysis, and a determination by you as to whether you recommend that the new MRI services to be a sound financial decision.

The second portion of the report will be your cash flow analysis in the form of a spreadsheet.

For the report to be effective, it should be no less than five pages total, including references.

Unit 9 Assignment Grading Rubric = 325 points

Assignment Requirements Points possible

Points earned by student

Report includes an introduction (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 flow analysis

(0-75)

Report includes a conclusion paragraph summarizing the written portion (0-50)

Report includes a spreadsheet cash flow analysis (0-100)

Total (Sum of all points)