Unit 9 Assignment: Capital Budgeting

Question: #8496

Unit 9 Assignment:

Capital Budgeting

Unit outcomes addressed in this Assignment:

· Describe the role of financial analysis in health care financial decisions.

· Discuss the key elements in breakeven analysis.

· Explain how opportunity relates to cost principles.

Course outcome addressed in this Assignment:

HS440-4: Utilize financial analysis to inform management decisions.

GEL-2.3: Solve real-world problems using mathematical skills.

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.

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

Payer

# of scans per week

Charge per scan

Total Charges

Basis of Payment

Net Payment per Scan

Total Payments

Medicare

$1000

$10,000

Fixed fee

$740

$7,400

Medicaid

$1000

$5,000

Fixed fee

$700

$3,50

Private Insurance

$1000

$5,000

Full charge

$1000

$5,000

Blue Cross

$1000

$2,000

Percentage of Charge

$840

$1,680

Managed Care

$1000

$4,000

Percentage of Charge

$750

$2,000

Self-Pay

1,000

$1,000

Full Charge

$110

Total

$27,000

$19,690

Average

$1,000

$750

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.

Please be sure to download the file “Writing Center Resources” from Doc Sharing to assist you with meeting APA expectations for written assignments.

Submitting Your Work

For directions on how to submit your work and review your graded assignments, refer to the Dropbox Guide found on the Academic Tools tab. Make sure that you save a copy of your submitted work.

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)

Points deducted for spelling, grammar, and/or APA errors. (See Writing Deductions Rubric in Doc Sharing)

Adjusted total points

Solution: #8506

Unit 9 Assignment: Capital Budgeting

Unit 9 Assignment: Capital Budgeting Unit outcomes addressed in this Assignment: • Describe the role of financial analysis in health care financial decisions. • Discuss the key elements in breakeven analysis. • Explain how opportunity relates to cost principles. Course outcome addressed in this Assignment: HS440-4: Utilize financial analysis to inform management decisions. GEL-2.3: Solve real-world problems using mathematical skills. 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. 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-t...