Below are the projected revenues and expenses for a new clinical nurse specialist program being established by a hospital. Nurses would provide education while the patient is in the hospital and home visits after patient discharge on a fee-for-service basis. Should the hospital undertake the program if its required rate of return is 12%? Year 1 Year 2 Year 3 Year 4 Total Revenue costs 100,000 150,000 200,000 250,000 700,000 150,000 150,000 150,000 150,000 600,000 (50,000) 0 50,000 100,000 100,000

Below are the projected revenues and expenses for a new clinical nurse specialist program being established by a hospital. Nurses would provide education while the patient is in the hospital and home visits after patient discharge on a fee-for-service basis. Should the hospital undertake the program if its required rate of return is 12%? Year 1 Year 2 Year 3 Year 4 Total Revenue costs 100,000 150,000 200,000 250,000 700,000 150,000 150,000 150,000 150,000 600,000 (50,000) 0 50,000 100,000 100,000

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter10: Standard Costing And Variance Analysis

Section: Chapter Questions

Problem 1MTC

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Jefferson Memorial Hospital is an investment center as a division of Hospitals United. During the past year, Jefferson reported an after-tax income of $7 million. Total interest expense was $3,200,000, and the hospital tax rate was 30%. Total assets totaled $70 million, and non-interest-bearing current liabilities were $22,800,000. The required rate of return established by Jefferson is equal to 18% of invested capital. What is the residual income of Jefferson Memorial Hospital?
General Hospital, a not-for-profit acute care facility, has the following cost structure for its inpatient services Fixed $10,000,000 Variable cost per inpatient day 200 Charge (revenue) per inpatient day 1000 The hospital expects to have a patient load of 15,000 inpatient days next year. a. Construct the hospital’s base case projected P&L statement. b. What is the hospital’s breakeven point? c. What volume is required to provide a profit of $1,000,000? A profit of $500,000? d. Now, assume that 20 percent of the hospital’s inpatient days come from a managed care plan that requests a 25 percent discount from charges. Should the hospital agree to the discount proposal?
The hospital’s fixed costs are $38 million: What is the hospital’s net income? Assume that half of the 100,000 covered lives in the commercial payer group will be moved into a capitated plan. All utilization and cost data remain the same. What PMPM rate will the hospital have to charge to retain their Part a net income? What overall net income would be produced if the admission rate of the capitated group were reduced from the commercial level by 10 percent? Assuming that the utilization reduction also occurs, what overall net income would be produced if the variable cost per admission for the capitated group were lowered to $2,200?
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.
The hospital where you are employed is continuing with their analysis with the goal of opening a walk-in clinic. After conducting additional research, the financial projections for the first year of operations are as follows: Revenues (from 10,000 visits): $400,000 Wages and benefits: $220,000 Rent: $5,000 Depreciation: $30,000 Utilities: $2,500 Medical supplies: $50,000 Administrative supplies: $10,000 Assume that all costs are fixed except supply costs, which are variable. Assume that the clinic will be required to pay taxes at a 30% tax rate. Respond to the following questions. Be sure to show your work for all calculations. Prepare the clinic’s projected Profit and Loss (P&L) Statement. (8 points) What number of visits is required to break even? (3 points) What number of visits is required to provide you with an after-tax profit of $100,000? (4 points)
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.
An outpatient clinic invests $3,300,000. The desired ROI is 12%. In the first year, revenues are $1,750,000 and expenses are $1,270,000.   Calculate the ROI from this investment. Does the clinic meet its ROI requirement that year? You will answer YES or NO
Keating Hospital is considering two different low-field MRI systems: the Clearlook System and the Goodview System. The projected annual revenues, annual costs, capital outlays, and project life for each system (in after-tax cash flows) are as follows: Clearlook Goodview Annual revenues $720,000 $900,000   Annual operating costs 445,000 655,000 System investment 900,000 800,000 Project life 5 years 5 years Assume that the cost of capital for the company is 8%. Required: 1. Calculate the NPV for the Clearlook System. 2. Calculate the NPV for the Goodview System. Which MRI system would be chosen? 3. What if Keating Hospital wants to know why IRR is not being used for the investment analysis? Calculate the IRR for each project and explain why it is not suitable for choosing among…
Keating Hospital is considering two different low-field MRI systems: the Clearlook System and the Goodview System. The projected annual revenues, annual costs, capital outlays, and project life for each system (in after-tax cash flows) are as follows: Clearlook Goodview Annual revenues $720,000   $900,000   Annual operating costs 445,000 655,000 System investment 900,000 800,000 Project life 5 years 5 years Assume that the cost of capital for the company is 8 percent. The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems. Required: Calculate the NPV for the Clearlook System.$ Calculate the NPV for the Goodview System.$ Which MRI system would be chosen? Clearlook System Goodview System3. What if Keating Hospital wants to know why IRR is not being used for the investment analysis? Calculate the IRR for each project. Round the discount factor to three decimal places. Round the IRR…
. A hospital director is considering two alternative investment programs. Both have costs of $5,000 in year 1 only. Project 1 provides benefits of $2,000 in each of the first 4 years only. Project 2 provides benefits of $ 2,000 for years 6 to 10 only. a. Compute the net benefits using a discount rate of 6 percent. b. Knowing that the calculations are dependent on the discount rate, conduct a sensitivity analysis by re - calculating with a discount rate of 12 percent. Based on your calculations, which investment program should the director choose?
Two locations are considered for a new public small hospital. Location A would require an investrment of $3.4 million and $55,000 per ycar to maintain. Location B would cost $4.8 million to construct. The operating cost of location B will be $43,000 per year. The benefits will be $550,000 per year at location A and 5750000 at location B The disbenefits associated with each location are $35,000 per year for location A and $45,000 per year for location B. Assame the hospital will be maintained indefinitely Use an interest rate of 12% per year to determine which location, if either, should be selected on the basis of the BC method.
You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows: Revenue (10000 visits) $405,041 Wages and benefit $236,502 Rent $4,415 Depreciation $27,780 Utilities $2,845 Medical supplies $46,208 Administrative supplies $9,302 Assume that all costs are fixed, except supply costs, which are variable. Furthermore, assume that the clinic must pay taxes at a 30 percent rate. What number of visits is required to break even?