Table 1: Heritage Health Resources Cash Flow Expenses Daily Weekly Monthly Annually Rent $ 700 $ 8,400 Utilities $ 200 $ 2,400 Phone $ 100 $ 1,200 Salaries Therapists $ 400 $ 2,000 $ 8,000 $ 96,000 FT Staff $ 120 $ 600 $ 2,400 $ 28,800 PT Staff $ 28 $ 140 $ 560 $ 6,720 Totals $ 548 $ 2,740 $ 10,960 $ 131,520 Taxes $ 82 $ 411 $ 1,644 $ 19,728 Supplies/Other Expenses $ 50 $ 200 $ 2,400 Total Expenses $ 3,201 $ 13,804 $ 165,648 Receivables Client Receivables $ 750 $ 3,750 $ 15,000 $ 180,000 Other Sources of Income $ 250 $ 3,000 Total Income $ 15,250 $ 183,000 

Once the claims were submitted to the various insurance providers, it could take several weeks--even months--to receive payment for services rendered. Some companies were painfully slow to pay. Ann was obligated to accept whatever reduced rate each insurance company was willing to pay based on her agreement with them. Ann depended heavily on insurance payments arriving in a timely manner. So far, such payments had covered Heritage's expenses for overhead ($1,000/month), salaries ($40/hour for therapists and $7-15/hour for staff), and taxes (15%). However, sometimes insurance providers made errors and did not pay all of the submitted claims, or claims were lost in the mail. Once such claims were resubmitted, the waiting process would start over. Kim sometimes spent hours on the phone with insurers trying to resolve issues. Receiving timely, steady payments was essential to the success and longevity of Ann's business. As a small company, it was extremely important for claims to be processed quickly to ensure a sustained, positive cash flow for continued operations (see Table 1).

1. Use the net present value method to identify the alternatives carefully
2. Use the cost/benefit information provided to determine the initial investment and future incremental cash flows
3. Use the opportunity cost (you may assume around 8% if it is not given) to discount cash flows to present value
4. Compare NPV of each alternative and choose the best.