4. If adding bed capacity costs about $100,000 per bed, the average rate charged for the hernia surgery is $2,400, and surgeons are paid a flat $800 per operation, can Shouldice justify any expansion within a 5-year time period?
If the expansion decision is made on the basis of ROI ( Return On Investment), this is a very good investment.
(NPV is ignored, but can be added – no interest rate is given in the case.)
The expansion could be made on the other basis (i.e., Shouldice investors and personnel decide they are doing a good job and are happy with life, then the decision might well be made on other criteria.)
4. If adding bed capacity costs about $100,000 per bed, the average rate charged for the hernia surgery is $2,400, and surgeons are paid a flat $800 per operation, can Shouldice justify any expansion within a 5-year time period? If the expansion decision is made on the basis of ROI ( Return On Investment), this is a very good investment. (NPV is ignored, but can be added – no interest rate is given in the case.) The expansion could be made on the other basis (i.e., Shouldice investors and personnel decide they are doing a good job and are happy with life, then the decision might well be made on other criteria.)
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