DescriptionOverview
Maryland Home and Community-Based Services (MHCBS) is considering a
major expansion that will enable it to attract a different clientele
to its organization. Currently, they serve only 34% of the frail
elderly seniors and persons with disabilities in the local area. The
new chief executive officer (CEO) would like the organization to
expand its revenue stream by investing in a multipurpose center
serving healthy seniors by offering them arts and crafts and health
and wellness programs. The center will also contain an Internet café
offering nutritious breakfast and lunch options.
The CEO commissioned a needs assessment based on the following:
• Approximately 120 seniors in the local community are interested in
this center.
• The CEO expects the growth of the aging population to be at least
10% each year.
• Cost growth across all areas of expenses is expected to rise by 5% each year.
• The CEO has presented the proposal and financial information to the
BOD, and they have advised the CEO that they fully support the
strategy if the program benefits the community, and the organization
can recoup its investment in five years.
• The proposed revenue and costs to operate this new facility are as follows:
** Monthly Revenue
– Membership Fee: $125
** Monthly Fixed Costs
– Utilities: $590
– Health/Wellness Staff: $2,500
– Arts/Crafts Staff: $2,000
– Supplies: $800
– Fitness Equipment Maintenance Contract: $200
** Monthly Variable Costs
– Breakfast: $15
– Lunch: $25
Net Revenue/Cash Flow for Years 1 through 5
Based on the bullet points above, once the minimum threshold of
participants is reached, the initial investment to establish the
center is $317,880. The new organization anticipates that it will
generate $46,920 of net revenues in the first year, $68,166 in the
second year, $93,404 in the third year, $123,287 in the fourth year,
and $158,573 in the fifth year.
Deliverables
The CEO has presented the proposal and financial information to the
BOD, and they have advised the CEO that they fully support the
strategy if the program benefits the community, and the organization
can recoup its investment in five years. As a result, using the
information provided under the Overview, Needs Assessment Study, and
Net Revenue (Cash Flow) for Years 1 through 5, the CEO has asked you
to complete 1 and 2.
1. Perform the break-even analysis to determine how many seniors
(break-even point) would need to have a full monthly membership for
MHCBS to cover its monthly expenses. See Excel Spreadsheet to show
your calculations.
2. Calculate the payback period to determine how long it will take
MHCBS to recover its initial investment of establishing the senior
multipurpose center. Explain their implications in a 2–4-page
Memorandum to the CEO. Provide the discussion in the Memorandum (must
be in proper memorandum format).
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