Case 20
Page 1
CASE 20 JONES MEMORIAL HOSPITA
Capital Budgeting Decision Criteria
Instructor Version
This case deals with basic decision criteria in capital budgeting. The student version of the because the objective is for students to attempt basic calculations themselves. The key to s
lies in correct calculations and interpretation of the data.
Students should enter numbers, cell references, or formulae in cells that are shaded:
INPUT DATA:
Contractual
Average
allowances,
Payer
charge
discounts,
Payer
mix
per test
bad debts
Medicare
41%
$900
40%
Medicaid
17%
$700
35%
Blue Cross / Private insurance
17%
$1,000
50%
Managed care
14%
$800
45%
Self-pay
5%
$500
90%
Other
6%
$800
30%
Total
100%
Equipment cost
$300,000 Equipment installation
$30,000 Year 1 number of tests per year
600
Years 2-5 test volume growth rate
10%
Net patient revenue inflation rate
2%
Tests per 1.0 nurse FTE
750
Annual nurse salary & benefits
$100,000 Nurse salary & ben inflation rate
5%
Smith MOB Year 1-5 rent per year
$3,250 Omega REIT Year 1-2 rent per year
$3,000 Omega REIT Year 3-5 rent per year
$3,500 Annual maintenance costs
$50,000 Supplies cost per test
$20 Maint & sup cost inflation rate
3%
Salvage value
$100,000 Tax rate
20%
Pre-tax cost of capital
8%
Yr 1
Yr 2
Yr 3
Yr 4
MACRS recovery allowances
20%
32%
19%
12%
