Reference no: EM132744854

Question - Ahmet Sari recently graduated from medical school. He is considering opening his own practice doctor office. A doctor's office is a high-fixed cost business, as it requires considerable expenditures for facilities, labor, and equipment, no matter how many patients are served. Assume the annual fixed cost of operations is S400,000. Further assume that the only significant variable cost relates to patients served. An average patient served costs S250. Ahmet's banker has asked a variety of questions in contemplation of providing a loan for his business.

a) If Ahmet believes his profit will be at least S100,000 during the first year, how much is he anticipating for total revenue?

b) The banker has suggested that Ahmet can reduce his fixed costs by S100,000 if he will not purchase certain equipment. Ahmet can instead lease or rent this equipment as needed. The variable cost of leasing this equipment is S55 per patient served. Will this suggestion help Ahmet reach the break-even point sooner?