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 Administrative 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.