Boston City Medical Group

Several years ago, the management of a large medical chain, Boston Medical Group $($BMG$)$ purchased a hospital in Providence, RI$.$

Pleased with the results, BMG built a hospital in Fall River MA$,$ about $20$ miles from the Providence location. At the time of the proposal, there were eight other hospitals operating in the area and two additional hospitals under construction.

The Fall River location is an independent operating unit within the medical chain. For example, all financial and accounting services are provided in$-$house. The hospital has been profitable since the day it opened. However, the level of profits has not been satisfactory. Corporate management is well aware that BMG would have been better off if the huge sums involved in the construction of the hospital had been invested in certificates of deposit