For the first year, the hospital anticipates serving 1,500 patients, which is expected to grow by 8% per year. Based on current reimbursement formulas, each patient provides an average billing of $150,000, which will grow by 3% each year. However, because of managed care, the center collects only 35% of billings. Variable costs for supplies and drugs are calculated to be 12% of billings. Fixed costs for salaries, utilities, and so on, will amount to $20,000,000 in the first year and are assumed to increase by 6% per year. Develop a spreadsheet model to calculate the NPV of profit over the next three years. Use a discount rate of 7%. Define three reasonable scenarios that the center director might wish to evaluate and use the Scenario Manager to compare them.
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