You are a budget analyst for the city of Middleboro, which runs a day program for adult care. Below is the program’s annual operating budget for serving 600 people.
|Program Operating Budget for 600 people ($)|
It is based on the following parameters:
|Average fee per person per year ($)||92|
|Insurance reimbursement per person per year ($)||225|
|Fundraising per year||20000|
|Salaries per year ($)||95000|
|Benefits per year ($)||24000|
|Medical expenses per person per year ($)||45|
|Employment support per person per year ($)||52|
|Activities per person per year ($)||15|
The Day Program is space constrained and demand exceeds its capacity. The budget director now is considering the cost of expanding services and asks you to evaluate whether to do so. If the Day Program were to expand its infrastructure, at the tune of $205,000, it could absorb an additional 200 more people from Middleboro and surrounding cities, for a total of 800 people each year for the next 6 years. The new infrastructure would last 6 years and Middleboro’s cost of capital is 5 percent.
Assume operating revenues and expenses are evenly distributed over the year; that all fixed revenues and costs are constant; and that all variable cost and revenues are based on number of units.
- The budget director wants to know whether the decision is advisable. That is, will the revenues generated by the project be enough to repay the current investment?
- Also, the director wants to know whether the decision is sensitive to the frequency of payments and revenues, and asks you to consider models of annual, quarterly, and monthly payments and revenues.
- Finally, the budget director also wants to know whether the decision is sensitive to the discount rate, and specifically asks if the project is advisable with annual payments and revenues at discount rates of 3 percent and 7 percent.
What do you advise the budget director?
This task requires you to
- Update the annual budget for 800 people (prepare a simple, annual budget).
- Calculate the additional revenues generated by the expansion.
- Compare the cost of the expansion to the additional revenues, , using time value of money principles.
- Prepare the results in the following table:
- Address the policy questions in a 1-page memo Word document.
Part A (60 points)
Address analytical tasks 1-4 and take the quiz.
Part B (40 points)
Option to review work, reflect, revise, and resubmit.
After the due date, your grade on Part A and the solution set will be released.
- If you scored 60 on Part A, you will be awarded 40 points in Part B and you do not need to resubmit.
- If you scored less than 60 on Part A, you have the option to revise and resubmit your work. To do so, re-read the assignment and then review your work against the solution set. Revise your technical work and re-submit spreadsheet with original and revised work. As well, submit a 1-2 page reflection, in Word, that identifies each error, what you understand about the error, and why the solution provided is correct.
- Resubmissions that include a revised spreadsheet with no reflection will receive 10 points in Part B.
- Resubmissions that include a revised spreadsheet and a reflection that partially addresses the shortcomings will receive 20 points in Part B.
- Resubmissions that include a revised spreadsheet and a reflection that fully captures the shortcomings will receive 30 points in Part B.
Part C (30 points)
Address the budget director’s questions and provide advise in a 1-page policy memo.
The memo will be graded by the following rubric:
|Addresses the budget director’s inquiry and is persuasive||12|
|Grounds policy interpretations and recommendations in findings; memo is consistent with data||10|
|Memo presents data and findings clearly and is visually appealing||4|
|Memo is well-written and follows best practices||4|
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