Scenario: XYZ would like to assess whether investing in a new rehab center in Th
ID: 2638417 • Letter: S
Question
Scenario: XYZ would like to assess whether investing in a new rehab center in Thailand is financially viable given the current market. The current Thailand rehab volume is 3,000 units and consultants estimate that XYZ will be able to capture 1,000 units in year 1 and 5% of the remaining market share each year thereafter. Thailand rehab volume is projected to grow at 1% per year, managed care contracts are expected to increase gross revenue by 10% per year and inflation, supplies and other operating costs will increase by 3% per year.
Exercise:
Based on the scenario outlined above, complete the exercise below by populating each grey cell. Please list your assumptions in column G.
XYZ Data
Assumptions:
Units
1,000
Hours
10,500
Hours Per Unit Services
10.50
FTEs
5.05
Year 1
Year 2
Year 3
Year 4
Year 5
Gross Revenue Per Unit
180.00
Gross Revenue Deduction
25%
Salary Cost per Unit
85.00
Supplies Cost per Unit
10.00
Other Operating Cost per Unit
25.00
Thailand rehab volume (units)
Cost of Capital (dep sche 25 years)
$250,000.00
At least 3 FTE to cover hours of Operations. FTE conversion is 2080 hours per FTE
Year 1
Year 2
Year 3
Year 4
Year 5
Estimated Units
Estimated Hours
Hours Per Unit Services
FTEs
Gross Revenues
Deductions
Net Revenue
Salary Cost
Supplies Cost
Other Operating Cost
Depreciation
Total Cost
Operating Margin / Loss
Scenario: XYZ would like to assess whether investing in a new rehab center in Thailand is financially viable given the current market. The current Thailand rehab volume is 3,000 units and consultants estimate that XYZ will be able to capture 1,000 units in year 1 and 5% of the remaining market share each year thereafter. Thailand rehab volume is projected to grow at 1% per year, managed care contracts are expected to increase gross revenue by 10% per year and inflation, supplies and other operating costs will increase by 3% per year.
Exercise:
Based on the scenario outlined above, complete the exercise below by populating each grey cell. Please list your assumptions in column G.
XYZ Data
Assumptions:
Units
1,000
Hours
10,500
Hours Per Unit Services
10.50
FTEs
5.05
Year 1
Year 2
Year 3
Year 4
Year 5
Gross Revenue Per Unit
180.00
Gross Revenue Deduction
25%
Salary Cost per Unit
85.00
Supplies Cost per Unit
10.00
Other Operating Cost per Unit
25.00
Thailand rehab volume (units)
Cost of Capital (dep sche 25 years)
$250,000.00
At least 3 FTE to cover hours of Operations. FTE conversion is 2080 hours per FTE
Year 1
Year 2
Year 3
Year 4
Year 5
Estimated Units
Estimated Hours
Hours Per Unit Services
FTEs
Gross Revenues
Deductions
Net Revenue
Salary Cost
Supplies Cost
Other Operating Cost
Depreciation
Total Cost
Operating Margin / Loss
Explanation / Answer
Answer:
Particulars
XYZ Data
Assumptions
Units
1000
Based on the market survey and predictions by Consultants
Hours
10500
Units x Hours per unit services = total hours for expected 1000 hours
Hours Per Unit services
10.50
Based on the average hours as required by other companies in Thailand
FTEs
5.05
FTE (full time equivalent) is the number of working hours that represents one full-time employee during a fixed time period, such as one month or one year. On the basis of the consultant prediction and the existing market scenario, the number of employee required to complete 1000 units is 2080. Hence FTE = total hours required / number of employees = 10500 / 2080 = 5.05 (approx)
Year 1
Year2
Year3
Year4
Year5
Gross revenue Per Unit ($)
180
180*1.10=198
217.80
239.58
263.54
Gross Revenue Deduction ($) (25%)
45
49.5
54.45
59.90
65.89
Salary Cost Per Unit ($)
85
87.55
90.18
92.88
95.67
Supplies Cost Per Unit ($)
10
10.30
10.61
10.93
11.26
Other Operating cost Per Unit($)
25
25.75
26.52
27.32
28.14
Thailand Rehab Volume (units)
3000
3030
3060
3091
3122
Cost of capital ($250000 / 25) ($)
10000
10000
10000
10000
10000
Note:
1) As the inflation is 3% per annum, the salary cost has been assumed to increase by the same rate per annum to compensate the employees for the inflation
2) Cost of capital is depreciation per annum which is fixed
Year 1
Year2
Year3
Year4
Year5
Estimated Units
1000
1102..............
1200
1295
1386
Estimated Hours
10500
11571
12600
13598
14553
Hours per unit services
10.50
10.50
10.50
10.50
10.50
FTEs
5.05
5.05
5.05
5.05
5.05
Gross Revenues
180000
218196
261360
310256
365266
Deductions
-45000
- 54549
- 65590
- 77564
- 91317
Net Revenue (A)
135000
163647
195770
232692
273949
Salary Cost (a)
85000
96480
108216
120280
132599
Supplies Cost (b)
10000
11351
12732
14154
15606
Other Operating Cost (c)
25000
28377
31824
35379
39002
Depreciation (d)
10000
10000
10000
10000
10000
Total Cost (B) (=a+b+c+d)
130000
146208
162772
179813
197207
Operating Margin/Loss (A
Particulars
XYZ Data
Assumptions
Units
1000
Based on the market survey and predictions by Consultants
Hours
10500
Units x Hours per unit services = total hours for expected 1000 hours
Hours Per Unit services
10.50
Based on the average hours as required by other companies in Thailand
FTEs
5.05
FTE (full time equivalent) is the number of working hours that represents one full-time employee during a fixed time period, such as one month or one year. On the basis of the consultant prediction and the existing market scenario, the number of employee required to complete 1000 units is 2080. Hence FTE = total hours required / number of employees = 10500 / 2080 = 5.05 (approx)
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