# Finance Project Part I

```Finance Project Part I:
Problem # 2
You are considering starting a walk-in-clinic. Your financial projections for the first
year of operations are as follows:
Revenues (10,000 visits)
Wages & Benefits
Rent
Depreciation
Utilities
Medical Supplies
\$400,000
\$220,000
\$5,000
\$30,000
\$2,500
\$50,000
\$10,000
Assume that all costs are fixed, except supply costs, which are variable.
Furthermore, assume that the clinic must pay taxed at a 30% rate.
a. Construct the clinic’s projected P&L statement.
Number of visits (10,000)
Total Revenues
\$400,000
Total variable costs (supplies)
\$60,000
Contribution Margin
\$340,000
Fixed Cost
\$257,500
Profit
\$82,500
Tax
\$24,750
Net Profit
\$ 57,750
b. What number of visits is required to break even?
Break even visits
= Fixed cost / contribution margin per unit
= \$257,500 / 34
= 7573.52
= 7574 visits
Per Unit
40
6
34
c. What number of visits is required to provide you with an after-tax profit of
\$100,000?
Profit after tax
= \$100,000/0.7
= \$142,857
Target Visit = (Fixed Cost + Profit after tax) / Contribution margin unit
= (\$257,500 + \$142,857) / 34
= 11775 visits required
Problem # 3
Assume that a primary care physician practice performs only physical examinations.
However, there are three levels of examinations I, II, III – that vary in depth and
complexity. An RVU analysis indicates that a Level I examination require 10 RVUs, a
level II exam 20 RVUs, and a Level III exam 30 RVUs. The total costs to run the
practice, including a diagnostic laboratory, amount to \$500,000 annually, and the
numbers of examinations administered annually are 2,400 Level I, 800 Level II, and
400 Level III.
a. Using the RVU methodology, what is the estimated cost per type of
examination?
Visits
Number of RVUs
Level I
Level II
Level III
10
20
30
Number of Exams
Annually
2,400
800
400
Estimated cost: \$ 500,000 / \$ 52,000 = \$ 9.62 per RVU
Total
\$24,000
\$16,000
\$12,000
\$52,000
b. If the goal of the practice is to earn a 20% profit margin on each examination,
how should the examination be priced?
\$ 9.62 x \$ 1.25 = \$12.02 examination priced with 20% profit margin.
```