CAPITAL BUDGETING AND THE “PAY-BACK PERIOD”

MEDICAL CLINIC CAPITAL BUDGETING AND THE “PAY-BACK PERIOD”

Courtesy: www.CertifiedMedicalPlanner.org

By Dr. David E. Marcinko MBA

[A Cost Behavior Case Model for My B-School Students]

The Pay-Back Period refers to time required to recoup funds expended in an investment or reach the break-even point.

LINK: https://www.amazon.com/Dictionary-Health-Economics-Finance-Marcinko/dp/0826102549/ref=sr_1_6?ie=UTF8&s=books&qid=1254413315&sr=1-6

Joseph Spine DO wants to install a new large piece of Durable Medical Equipment in place of several smaller ones in his clinic. He will hire a therapist for the equipment and estimates incremental annual revenues and expenses below:

PRO-FORMA:

Revenues                           $10,000   

Less Variable Expenses       3,000

Contribution Margin              7,000

   Less Fixed Expenses

Insurance                             900

Salaries                              2,600

Depreciation                      1,500

5,000

NET INCOME:              $ 2,000

NOTE: Equipment parts are $15,000 for a 10-year life. The old machines sold for $1,000 salvage value. Dr. Spine requires a payback of 5 years or less.

QUERY: What is the pay-back period [dollars and years] and some key issues to consider?

CM SOLUTION: https://healthcarefinancials.files.wordpress.com/2013/09/managerial-costs.pdf

Your thoughts are appreciated.

THANK YOU

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