Review the walk-in clinic data presented in problem 5.5. Construct projected P&L statements at volume levels of 8,000, 9,000, 10,000, 11,000, and 12,000 visits.

a. Assume that the base case forecast is 10,000 visits. What is the clinic’s degree of operating leverage (DOL) at this volume level? Confirm the net incomes at the other volume levels using the DOL combined with the percent changes in volume.

b. Now assume that the base case volume is 9,000 visits. What is the DOL at this volume?

Problem 5.5

You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows:

Assume that all costs are fixed, except supply costs (medical and administrative), which are variable. Furthermore, assume that the clinic must pay taxes at a 30 percent rate.

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Revenues (10,000 visits) $400,000 Wages and benefits 220,000 Rent 5,000 Depreciation 30,000 Utilities 2,500 Medical supplies 50,000 Administrative supplies 10,000