Palm Hospital Notes Essay

1051 WordsApr 11, 20135 Pages
Palms Hospital (Traditional Project Analysis) Palms Hospital * 250 bed capacity; investor owned; Islamorada, Florida * Founded in 1946 by Rob Winslow, went back in 1967 after the war * High economic growth, population expansion * Acknowledged to be one of the leading healthcare providers in the area * Currently evaluating a proposed ambulatory (outpatient) surgery centre * More than 80% o all outpatient surgery is performed by specialists * Minor procedures take about one hour or less, major procedures take two or more hours * About 60 percent of the procedures are performed under general anesthesia, 30 percent under local anesthesia, 10 percent under regional or spinal anesthesia * Operating rooms…show more content…
*Note: the building and the equipment fall into the modified accelerated cost recovery system (MACRS) five-year class for tax depreciation purposes; in reality, the building has to be depreciated over a longer period than the equipment * Although the project may have a longer life, the hospital assumes a five-year life in its capital budgeting analyses and then approximates the value of the cash flows beyond year 5 by including a terminal/salvage value in the analysis; to estimate this value, the hospital uses the market value of the building and equipment after five years, which in this case is $5M before taxes, excluding land value. *Note: taxes must be paid on the difference between an asset’s salvage value and tax book value at termination; for example, if an asset that cost $10,000 is depreciated to $5,000 and then sold for $7,000, the firm owes taxes on the $2,000 excess in salvage value over tax book value * Expected volume for this centre is 20 procedures a day, with an average charge of $1,500 but charity care, bad debts, managed care plan discounts and other allowances lower the net revenue amount to $1,000; the centre will be open 5 days a week, 50 weeks a year, 250 days out of the year. Labor costs are expected to run at $918,000 a year excluding fringe benefits; utility costs run at $50,000 a year * If the centre is built, hospital’s cash overhead will increase by $36,000

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