Dr. Coombes is a dermatologist who until recently has largely stayed away from cosmetic services. Vickie is a sales rep for Kinsella Industries. Kinsella industries has a new line of hair-removal lasers that Vickie is promoting. She's helping Dr. Coombes work out a business plan to decide if cosmetic hair removal is a new line of business that she would like to add to her practice. The cost of the laser is $300,000. The equipment is considered to have a 7 year life for tax purposes. Dr. Coombes's accountant uses MACRS to calculate depreciation (see MACRS rates to right). The practice pays a Corprorate Tax Rate of 28%. Vickie tells Dr. Coombes that the company would be willing to buy the equipment back at the end of 6 years for $50,000. Dr. Coombes would want to consider replacing it at that point anyhow, so they plan for a 6 year project. Vickie recommends applying a global inflation rate of 2.5% annually on revenues and appropriate expenses. Vickie says average charges per treatment are $47 in Dr. Coombes' market. Typically a procedure takes 20 minutes, and there is some start up and shut down each shift, so a technician can typically do 7 hours of procedures each day. The clinic operates 5-days/week. Vickie suggests Dr. Coombes plan for 48 weeks of services per year to allow for maintenance and vacations. Vickie suggests allowing for annual maintenace starting at a cost $7,500 this year. Dr. Coombes believes she can hire a tech for $60,000 per year. She estimates the overhead for the laser would be about $20,000 in the first year, representing the rent for the space, plus the additional work on the front desk staff. Vickie tells Dr. Coombes that Kinsella Industries sells the supplies needed for the procedures for $8/procedure. Assume Dr. Coombes uses a hurdle rate of 8% for projects like this. Dr. Coombes is a dermatologist who until recently has largely stayed away from cosmetic services. Vickie is a sales rep for Kinsella Industries. Kinsella industries has a new line of hair-removal lasers that Vickie is promoting. She's helping Dr. Coombes work out a business plan to decide if cosmetic hair removal is a new line of business that she would like to add to her practice. The cost of the laser is $300,000. The equipment is considered to have a 7 year life for tax purposes. Dr. Coombes's accountant uses MACRS to calculate depreciation (see MACRS rates to right). The practice pays a Corprorate Tax Rate of 28%. Vickie tells Dr. Coombes that the company would be willing to buy the equipment back at the end of 6 years for $50,000. Dr. Coombes would want to consider replacing it at that point anyhow, so they plan for a 6 year project. Vickie recommends applying a global inflation rate of 2.5% annually on revenues and appropriate expenses. Vickie says average charges per treatment are $47 in Dr. Coombes' market. Typically a procedure takes 20 minutes, and there is some start up and shut down each shift, so a technician can typically do 7 hours of procedures each day. The clinic operates 5-days/week. Vickie suggests Dr. Coombes plan for 48 weeks of services per year to allow for maintenance and vacations. Vickie suggests allowing for annual maintenace starting at a cost $7,500 this year. Dr. Coombes believes she can hire a tech for $60,000 per year. She estimates the overhead for the laser would be about $20,000 in the first year, representing the rent for the space, plus the additional work on the front desk staff. Vickie tells Dr. Coombes that Kinsella Industries sells the supplies needed for the procedures for $8/procedure. Assume Dr. Coombes uses a hurdle rate of 8% for projects like this
