5.5 You are considering starting a walk-in clinic. Your financial projections fo

ID: 2780691 • Letter: 5

Question

5.5 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 and 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 vari able. Furthermore, assume that the clinic must pay taxes at a 30 per- cent rate. a. Construct the clinic's projected P&L; statement. b. What number of visits is required to break even? c. What number of visits is required to provide you with an after-tax profit of S100,000

Explanation / Answer

a_ Projected P & L Statement :

Revenues

$400000

Less: Expenses:

Wages and benefits

220000

Rent

5000

Depreciation

30000

Utilities

2500

Medical supplies

50000

Administrative supplies

10000

Total Expenses:

317500

Income before tax

82500

Less: Income tax 30%

24750

Net Income

$57750

b_ Break even visits : Fixed costs / contribution per visit

Contribution per visit = (400000 - 60000) / 10000 = $34 per visit

Fixed Costs = Total costs - Variable costs = 317500 - 60000 = $257500

Break even visits : 257500 / 34 per visit = 7574 visits

c_ For after tax profit of $100000, we require before tax profit = $100000 / 0.70 = $142857

Total contribution required in the case = FC + expected profits = 257500 + 142857 = $400357

Number of visits which provide after tax profit of $100000 = $400357 / $34 = 11775.20 visits