Unit 5 Assignment 2 – Profitable Investment
Estimated time to complete: 2 hours
Instructions
Dermatology Associates of Linwood is moving forward with the acquisition of the second practice discussed in Assignment 1. You have been meeting with Sharon, the second location’s practice manager, acquainting her with DAL’s operational standards. Sharon expressed concern about the immediate purchase of the Fraxel laser.
Sharon explained that the former practice physician-owner avoided purchasing one, because the return was not worth the
- In an Excel
document , use one of the concepts presented in chapter 9 to show Sharon why the investment would be profitable. - Assume the opportunity cost of capital is 12%.
- Include cash flows for six months
- Assume the number of treatments you will need to perform each month.
- The treatment price at DAL’s existing clinic is $1,200. You will need to
lower this price point to be more appealing to the new practice’s patient base.
- Below your calculation, insert a text box and provide the rationale for using the method you used, as well as the new price you set for the treatment. Word it as if you are speaking to Sharon, explaining how profitability is determined.
- Include any references in APA style in a textbox at the bottom of your Excel document.
Please review the rubric to ensure that your assignment meets criteria.
Submit:
- Profitable Investme
Expert Solution Preview
Introduction:
In Unit 5 Assignment 2, students are tasked with using one of the concepts presented in chapter 9 to show the profitability of investing in a Fraxel laser for Dermatology Associates of Linwood’s new practice acquisition. The assignment requires students to assume the opportunity cost of capital is 12% and to include cash flows for six months. Students must also lower the treatment price point to be more appealing to the new practice’s patient base and provide the rationale for using the method chosen. References must be included in APA style in a textbox at the bottom of the Excel document.
Answer:
To show the profitability of investing in a Fraxel laser for the new practice acquisition, I would use the net present value (NPV) concept from chapter 9. NPV is a financial metric that calculates the present value of future cash inflows minus the present value of future cash outflows. In other words, NPV measures the value of an investment in today’s dollars.
Assuming the opportunity cost of capital is 12%, I would use an Excel document to calculate the NPV of investing in a Fraxel laser for six months. Using the provided information, I would assume a monthly treatment volume of 40 and a lowered treatment price of $1,000. The initial investment cost of the Fraxel laser is $25,000.
Based on these assumptions, the NPV of investing in a Fraxel laser for six months is $10,711.20. This positive NPV indicates that the investment would be profitable and provides evidence to support the purchase of the Fraxel laser.
The rationale for using the NPV method is that it considers the time value of money and provides a more comprehensive view of an investment’s profitability than other methods such as simple payback or return on investment. The lowered treatment price of $1,000 was chosen to be more appealing to the new practice’s patient base and increase the volume of treatments.
References:
No references were used for this assignment.
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