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.
For this Assignment you will complete a cash flow analysis for a new MRI service for the
physicians network. Based upon your analysis you will recommend whether the new MRI
service is a sound financial decision for the physicians 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 physicians 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 $70000 including benefits.
There are no increased overhead costs associated with the opening as the physicians network
has an existing building that is currently vacant.
Annually the MRI machine requires $125000 in maintenance costs.
The long-term plan is to utilize this MRI system for five years. At this end of this period the
physicians network will sell the MRI for salvage for $750000 (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 = $83478 with an internal rate of return equal
to $11.1%.
HS440 | Finance for Health Care
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: $500000
Payer # of scans
per week
Charge per
Basis of
per Scan
Medicare 10 $1000 $10000 Fixed fee $740 $7400
Medicaid 5 $1000 $5000 Fixed fee $700 $350
5 $1000 $5000 Full charge $1000 $5000
Blue Cross 2 $1000 $2000 Percentage
of Charge
$840 $1680
4 $1000 $4000 Percentage
of Charge
$750 $2000
Self-Pay 1 1000 $1000 Full Charge $110 $110
Total 27 $27000 $19690
Average $1000 $750
To present your analysis the physicians 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
HS440 | Finance for Health Care
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
earned by
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
Report includes a conclusion paragraph summarizing the written
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