ROI for an investment center. A new cardiac catheterization lab was constructed
ID: 2502701 • Letter: R
Question
ROI for an investment center. A new cardiac catheterization lab was constructed at Havea Heart Hospital. The investment for the lab was $450,000 in equipment costs and $50,000 in renovation costs. A desired return on investment is 12 percent. Once the lab was constructed, 5,000 patients were served in the first year and were charged $340 for each procedure. The annual fixed cost for the catheterization lab is $1,000,000, and the variable cost is $129 per procedure. What is the catheterization lab's profit? Did this profit meet its desired ROI?
Explanation / Answer
Soln :
Total investment = investment for the lab + renovation costs
Total investment = $ 500,000
Revenue in 1 year = $5000X340 = $ 1,700,000
Annual fixed cost = 1,000,000
variable cost = 129X5000 = 645,000
total cost = 1,000,000 + 645,000 = 1,645,000
profit = $ 1,700,000 - 1,645,000 = $ 55,000
ROI = gain - cost / cost
ROI = 55,000 - $ 500,000 / $ 500,000 = - 89%
The profit did not meet because the ROI is negative .
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