Considering opening pediatric unit

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Reference no: EM131070708

Assume that you are the CFO of a non-tax paying hospital that is considering opening a pediatric unit. Based on your research, you expected the following: The cost of new equipment for the unit is $4 million. The equipment has a 10 year useful life and can be sold for $500K at the end of 10 years. (Assume straight line depreciation) The staffing cost for the unit is as follows: 3 doctors @ an average annual salary of $250K each 6 nurses @ an average annual salary of $70K each 1 administrative assistant with an annual salary of $40K A salary increase of 4% is given each year. Employee benefits are 35% of salaries Other operating expenses are projected at $2.75 million per year and are expected to increase by 5% each year. The average revenue collected from each patient encounter is $650. In the first year, this unit is expected to have 8,000 patient encounters. Patient encounters are expected to grow by 2% each year in years 2-4 and 4% each year in years 5-7 and 5% each year in years 8-10. The required rate of return is 10%. The required payback period is 7 years.

Reference no: EM131070708

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