This analysis shows that you would have an IRR of 88%, which is fantas-
tic. You have positive cash flow after 1 year. Remember, all of this
depends on the accuracy of your assumptions. Another way to look at
these purchases is to calculate how many cases/procedures it will take to
break even. See the table below.
2 2 • O U T PA T I E N T S U R G E R Y M A G A Z I N E • N O V E M B E R 2 0 1 8
Upfront
Costs
Year 1 Year 2 Year 3 Year 4
Number of orthopedic procedures using C-arm 125 130 137 145
Expected avg. reimbursement per patient $2,500 $2,500 $2,500 $2,500
Total revenue $312,500 $325,000 $342,500 $362,500
Equipment purchase plus tax $148,400
Terminal value of equipment
Staff training (time required of staff) $1,440
Procurement time costs $800
Supply costs (using facility per-case costs) $100,000 $104,000 $109,600 $116,000
Labor costs (using facility per-case costs) $62,500 $65,000 $68,500 $72,500
Maintenance contract costs $10,000 $10,000 $10,000 $10,000
Additional support/maintenance/upkeep costs $2,000 $2,000 $2,000 $2,000
Total expenses $150,640 $174,500 $181,000 $190,100 $200,500
Cash flow $(150,640) $138,000 $144,000 $152,400 $162,000
Internal Rate of Return (IRR) Calculation
IRR: 88%
Total cash flow: $445,760
Year 1 Year 2 Year 3 Year 4 Year 5
Number of orthopedic procedures using C-arm 125 130 130 137 145
Margin on cases $118,750 $123,500 $123,500 $130,150 $137,750
Gross Profit $118,750 $123,500 $123,500 $130,150 $137,750
Depreciation $28,000 $28,000 $28,000 $28,000 $28,000
Annual service contract or procurement costs $2,240 $10,000 $10,000 $10,000 $10,000
Total Expenses $30,240 $38,000 $38,000 $38,000 $38,000
Net Incremental Profit $88,510 $85,500 $85,500 $92,150 $99,750
Break Even Annual Cases Needed 31.8 40.0 40.0 40.0 40.0
Break Even Monthly Cases Needed 2.7 3.3 3.3 3.3 3.3
Return on Investment (ROI) Calculation
Purchase price: $140,000
Total net profit over 5 years: $451,410
