You are the chair of the budgeting team at Health Care Medical Center and are in the process of approving the budget for the next few years. The following proposals have been made by department/unit heads. Proposal #1 A psychiatric facility to operate in the medical center. The facility will provide services to patients on an outpatient basis. The facility will operate Saturday and Sunday 8:00 am to 6:00 pm. The labor requirements will be one salaried physician per day; two nurses for each day and one medical assistant/front office staff member per day. The goal is to provide needed mental health services within the community. The proposal will require an initial outlay of $35,000 plus $80,000 per year fixed costs and an additional $25 in variable costs per patient seen at the clinic. The financial projections for the clinic are as follows: Initial investment/outlay $35,000 Variable costs $25/patient Fixed costs $80,000/year Price charged per visit $100/patient fixed for three years # of patients projected in1st year 800 Increase in # of patients 300/year for fours years Anticipated cash flow [Y1: -20,000] [Y2: 2,500] [Y3: 25,000] [Y4: 47,500] Proposal #2 Lease of a computed tomography (CT) scanning machine for operation 24 hours a day 7 days a week. The lease of the CT will obviate the need to purchase CT services from outside mobile CT units. This proposal will require a monthly lease, service and insurance payment of $75,000, and an additional variable cost of $750 per case. The medical center will have to pay for CT training and continuing education of its radiology staff of 8. This requires the staff to travel to Washington D.C. for one week each year at a cost of $3,000 per staff member. There will also be a $16,000 cost in preparing a room for the CT scanner. This translates to a total initial outlay of 40,000. The financial projections for the CT scanner are as follows: Initial investment/outlay $40,000 Variable costs $750/patient Fixed costs $75,000/month Price charged per visit $1200/patient fixed for three years # of patients projected in 1st year 1400 Increase in # of patients 400/year for fours years Anticipated cash flow [Y1: -270,000] [Y2: -90,000] [Y3: 99,000] [Y4: 570,000] Your assignment: In a 4-5 page paper (12-15 slide presentation) evaluate the two proposals and render a decision as to which proposal should be accepted. In evaluating the proposals you should apply the processes including break-even analysis, payback and any other applicable processes. Be sure to show all formulas and calculations in your paper. Where you identify processes for which additional information is required, briefly describe the process and identify the information you would need. In your response you should: Calculate and identify the point at which both proposals will break-even; Calculate and identify the point at which the cash flows of both proposals will payback all of the investments and losses and actually become profitable; and Discuss which proposal would return a net profit first, and which will be more profitable long-term. Expectations for this assignment: - conduct research about and discuss capital budgeting in general and its significance in health care organizations in particular; - conduct research about break-even analysis, profitability and payback processes and apply in evaluating the two proposals presented.