# FINANCIAL ANALYSIS CYCLE

Marginal Profit and Loss Statement Scenario

You are examining a proposal for a new business opportunity—a new procedure for which demand is expected to be 1,400 units the first year, growing by 600 units a year

thereafter. You are able to perform 2,400 units per year. The price charged per procedure is $1,000. The collection rate is anticipated to be 80%. Each procedure

consumes $300 of supplies. Salary cost is estimated to cost $600,000 each year, fringe benefits are 25% of salaries, office supplies not associated with the procedure

are $1,000 per month and rent for the facility is $88,000 a year.

Question: Develop a marginal profit and loss statement for this business opportunity.

Based on that analysis, should this opportunity be pursued?

Break-Even Analysis Scenario

You can charge $1,100 for a new service. Demand is anticipated to be 8,000 units a year. Your business is able to handle up to 16,500 units annually, so capacity

should not be a problem. The average collection rate is 80%. The new service has annual fixed costs of $5,000,000. Variable cost per unit of service is $480.

Question: Use break-even analysis to determine if this new service is financially viable. If the business is not financially viable, what steps could you take to make

a case to proceed with implementation?

Benefit/Cost Ratio Analysis Scenario

You are considering the acquisition of a new piece of equipment with a useful life of five years. This new technology will make your clinical operation more efficient

and allow for a reduction of 10 FTEs. The equipment purchase price is $4,500,000 plus 10% installation fee. The purchase price includes service for the first year, an

item that has an annual cost of $10,000. There is a potential for additional volume of 150,000 units in the first year, growing by 30,000 each year thereafter. The

price charged per unit is $15.00 with a 50% collection rate. The staff being eliminated are paid $12.50 per hour. The fringe benefits rate is 20%. The hurdle rate is

7.5%.

Question: What is the benefit/cost ratio, the average payback period, and the return on investment associated with this opportunity? Based on this information, would

you pursue this opportunity? Explain your decision.

Check If Completed

Expectations Points Possible

1. ______

2. ______

3. ______

Benefit/Cost Ratio Analysis Scenario

Benefit/cost ratio calculations are shown in Excel spreadsheet.

The benefit/cost ratio, the average payback period, and the return on investment are correctly calculated.

An explanation whether to pursue the opportunity or not is provided.

Calculations in Excel = 50 points

Correct revenue calculation = 50 points

Explanation = 50 points

1. ______

2. ______

3. ______

Marginal Profit and Loss Statement Scenario

Marginal profit and loss calculations are shown in Excel spreadsheet.

Marginal profit and loss statement is correct.

An explanation whether to pursue the opportunity or not is provided.

Calculations in Excel = 50 points

Correct statement = 50 points

Explanation = 50 points

1. ______

2. ______

3. ______ Break-Even Analysis Scenario

Break-even calculations are shown in Excel spreadsheet.

Break-even analysis calculations are correct.

An explanation of whether the business is financially viable and if not, what could be done to proceed with implementation. Calculations in Excel = 50points

Correct break-even calculations = 50 points

Explanation = 1 5 points

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