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Instructions
Assignment 2
Break-Even Analysis Description and Solutions
Description
Overview
Maryland Home and Community-Based Services (MHCBS) is considering a major expansion that will enable it to attract a different clientele to its organization. Currently, they serve only 34% of the frail elderly seniors and persons with disabilities in the local area. The new chief executive officer (CEO) would like the organization to expand its revenue stream by investing in a multipurpose center serving healthy seniors by offering them arts and crafts and health and wellness programs. The center will also contain an Internet café offering nutritious breakfast and lunch options.
The CEO commissioned a needs assessment based on the following:
Approximately 120 seniors in the local community are interested in this center.
The CEO expects growth of the aging population to be at least 10% each year.
Cost growth across all areas of expenses is expected to rise by 5% each year.
The CEO has presented the proposal and financial information to the BOD, and they have advised the CEO that they are in full support of the strategy if the program is a benefit to the community and the organization can recoup its investment in five years.
Proposed revenue and costs to operate this new facility are as follows:
** Monthly Revenue
– Membership Fee: $125
** Monthly Fixed Costs
– Utilities: $590
– Health/Wellness Staff: $2,500
– Arts/Crafts Staff: $2,000
– Supplies: $800
– Fitness Equipment Maintenance Contract: $200
** Monthly Variable Costs
– Breakfast: $15
– Lunch: $25
Net Revenue/Cash Flow for Years 1 through 5
Based on the bullet points above, once the minimum threshold of participants is reached, the initial investment to establish the center is $317,880. The new organization anticipates that it will generate $46,920 of net revenues in the first year, $68,166 in the second year, $93,404 in the third year, $123,287 in the fourth year, and $158,573 in the fifth year.
Deliverables
The CEO has presented the proposal and financial information to the BOD, and they have advised the CEO that they are in full support of the strategy if the program is a benefit to the community and the organization can recoup its investment in five years. As a result, using information provided under the Overview, Needs Assessment Study, and Net Revenue (Cash Flow) for Years 1 through 5, the CEO has asked you to complete 1 and 2.
1. Perform the break-even analysis to determine how many seniors (break-even point) would need to have a full monthly membership for MHCBS to cover its monthly expenses. See Excel Spreadsheet to show your calculations.
2. Calculate the payback period to determine how long it will take MHCBS to recover its initial investment of establishing the senior multipurpose center. In a 2-4 page Memorandum to the CEO, explain their implications. Provide the discussion in the Memorandum (must be in proper memorandum format). *At least one (1) cited source is required.
Grading
Assignment 2 is worth 10 points. Grading is based on the Rubric, together with the UMGC “Grade Interpretation Quality Points” as provided in the Syllabus.
Due Date
Jun 27, 2023 11:59 PM
Attachments
Summer 2023 Assignment 2 Break-Even Analysis – … (11.52 KB)
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