CASE STUDY SWAN REHABILATION COMPANY: A GREAT SUCCESS STORY Question 1 Capital budgeting can be defined as making an investment

decision involving fixed assets. It is referring to a long term asset used in production which plan the best way how to fully utilize it and it is basically just a summary of planned investment. We believe in making capital budgeting decision, one should follow these steps !i" #tep $ %he first step is to develop and formulate of a capital budget that outlines company long term strategic goal. %his main goal will make the company to focus on their objective of what the company want to achieve. %his will be a framework that help drives the performance of company and without a proper goals, the company cannot go further. !ii" #tep & #tep two is search out new opportunity investment project or new ideas. 'ew ideas can come from all levels within an organization and may include things like more land, new e(uipment, and new lines of business that involve different processes. #ee which opportunities are actually realistic at the present time and which ones should be put off for later. #ee which opportunities are actually realistic at the present time and which ones should be apply later. !iii" #tep ) #tep three review existing projects and facilities. %his is the time where assets and resources been evaluated to determine how they are currently being used. If there is an asset that has not yet being fully utilizes, perhaps company can reduce cost to buy new machinery for new project. !iv" #tep * #tep four determines how much cash flow it would take to implement a given project and estimate how much cash would be brought in by such a project.
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#tep + #tep five evaluates proposed projects and creating the capital budget. ,ecision makers determine the risk and value associated with investing in the proposed projects.

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#tep .inal step is implementation once the decisions have been made. /onitor everything to be sure it is done correctly. 0fter the project gets started, review everything to make sure the finances still make sense.

/eanwhile on 1ay2s case, the steps taken in making capital budgeting decisions were as follows !i" .irst #tep34ong term goalswere clearly identified where 1ay outlined an ambition to become an entrepreneur conducting a clinical practice for stroke survivors based on up to date research while using an intensive treatment approach. 1ay was very clear of what she wants. #he had her own personal goal to achieve her mission for the next five to ten years. %his idea was inspired by some barriers that she had, such as when she was attempting to introduce her own therapy programme while working in a rehab facility. !ii" #econd #tep31ay saw an opportunity in a niche market specifically for stroke patient where the number of patients keeps on increasing. In fact, she realized a gap where every other disease in the 5nited #tates had a treatment camp, but stroke, with the largest population of disabled people, did not. /oreover, she foreseen her vast experience in her own subject matter as an advantage for her in the ventured business area.

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%hird #tep3 1ay utilized her vast knowledge and working experienceas a head of therapy in several hospitals to manage her own business in various aspects, including budgeting, purchasing of e(uipment and so on. 6y using her own seed money, she started venturing into the business on a small scale basis as a starting point before planning for expansion.

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.ourth #tep70s a main strategy to reduce operation costs that is crucial in the initial stage of operation, 1ay utilized her good relationship with suppliers which helpful in bargaining a good price !value for money" in purchasing clinical e(uipment.

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.ifth #tep3 1ay used pricing strategy to keep their pricing structure within community standard through collaboration with her accountant. %he accountant did the calculation and set the pricing of each treatment according to its treatment level. 6y doing so, the treatment price seen as affordable and at the same time 1ay knew the performance of her company.

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#ixth #tep7In the implementation8monitoring the project, a thorough monitoring mechanism was put in place to ensure the company2s survival in a long run. 0n micro analysis was properly done before moving from another premise to another, additional workforce, introducing new practise and so on. /oreover, the selling of her business to another party will be done in a proper manner so as to ensure the current #W0'2s image to be maintained.

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Question 2 In the case of purchasing of e(uipment for #W0', it is viewed that the most appropriate capital budgeting method to be used is a 'et 9resent :alue !'9:". '9: method is essential for financial appraisal of long3term projects and it measures the excess or shortfall of cash flows. ;ther than that, '9: model is assumed to be reinvested at the discount rate used. %hese are somejustification of choosing the '9: method !i" %ime :alue %he '9: method allows the company to consider the value of the money on the day the company pays it out and the value of the money on the day the company receives it. It means because the value of money changes over time specifically during inflation and deflation so company cannot rely on money being worth the same amount in the future as it is today. 0s this will help 1ay in preparing budgeting as 1ay can determine what investment should she prioritize and which should bethe later. !ii" :alue %he '9: reflects the amount of income that the project will produce at a determined rate of return and in the same time '9: method is able to determine whether the project will increase your firm<s value. %he '9: calculation reveals the dollar amount that the project will produce. =xample, 1ay wants to invest to purchase e(uipment for a five year project with an '9: of >$??,??? will increase profits by >$??,???. 9rojects with a negative '9: will decrease a firm<s profitability. !iii" @anking Capability '9: method can be used to compare projects. '9: calculates current total value of the project. %his method considers each of the expected cash receipts and cash payments and the value of the money at the time of the transaction. 1ay can use '9: to calculate which e(uipment is most likely can bring the highest value to the company in term of save cost of purchasing, maintenance cost but can be used for a

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long time and effective in treat patients. %he company may then pursue those projects that bring the most value to the organization. !iv" Cash .low %he '9: method can determine when the project can gain income as %he '9: method reveals how soon a project will start producing income and how significant that income will be. #W0' maybe cannot it profit in year one, 1ay can use '9: to calculate when will she get margin profit or supernormal profit. 6y doing this, #W0' should not be panic if they cannot generate profit in short term period as it is expected. !v" @eturn 9ercentage %he '9: is expressed in rate of return as some business managers would rather see a percentage. Aigher dollar amounts do not necessarily translate into higher returns. #W0'2s management can easily understand how to read the result of the '9: calculation without having so much knowledge of finance. In buying e(uipment, #W0' can know how many percentage point of return they can obtain based on per use of e(uipment per day. %his then can be accumulated to get projection of $ year sales service.

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Question 1ay faced several entry barriers when she started #W0'2s entity as follows !i" Capital @e(uirement 0t that point of time, 1ay does not have enough capital to start up #W0'.With her own seed money, she started the #W0'2s operation in a warehouse owned by a vendor who was developing a piece of e(uipment for stroke rehab includingutilizing the vendor2s e(uipment to treat her patients at no cost. 0t the beginning, due to lack of capital, 1ay does not employed workers because she could not afford to pay for labour cost and advertising the #W0'2s operation. !ii" #tiffCompetitions When she begunthe #W0' project, 1ay at that time was facingwith a stiff competitionfromseveral hospitals that providing treatments for the stroke survivors. #W0' at the earlier stage was not yet recognized famously by the stroke patients due to stroke survivors2preference on treatments provided by those hospitals. %his could be due to a perceived perception that those hospitalshad more experience and ableto provide better (uality of services via itsefficient e(uipment when dealing with stroke illness. !iii" #trong 6rand 'ame and Customer 4oyalty ,ue to the competition with several big hospitals, it was hard for 1ay to switch the stroke survivor mentality to trust her own treatment programme.It took some time for #W0' to break the tradition where some of them were loyal to big hospital such as the 9hoenix health care. !iv" 4ack of 6usiness 1nowledge 1ay does not have sufficient knowledge and expertise on how to run a proper business model. With a focused expertise in her own subject matter plus some relevant management knowledge, she refused to take a risk when she only used her seed money to start her venture. Aowever, it is viewed that these are not sufficient
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enough to nurture the company2s growth. With a sufficient and up to date knowledge about the current business environment, she should be able to start her business in a more spacious premise without using her seed money. It could be in the form of Bovernment2s grant8soft loan provided by the 5# Bovernment. !v" 5ncomfortable 9remise 0t the early stage of #W0'2s operation, she only rented a small warehouse to conduct her rehab programme. With a limited space for patients2 treatment, her premise could only accommodate a small number of patients at one time. %his has delayed the company2s growth where the patients who felt discomfort tend to return back to the traditional way of treatment provided by the competitors. !vi" Aigh #witching Cost #W0' at the early stage of operation might facewith high switching cost because of #W0'2s unrecognized brand name, small location of business operation and low trust from the eyes of the publics. #troke victims who aimed for fast result might go to hospitals.

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Question ! #W;% analysis of #W0' @ehabilitation St"en#t$s !i" =xperience in Intensive %herapy 'eurological ,iseases :ast working experience in a rehab facility and knowledge on intensive therapy for neurological experience in diseases. budgeting, %his includes of purchasing We%&nesses for !i" Insufficient 1nowledge and .und for 6usiness #tart35p8=xpansion #W0' is just a medium company that provides reasonable price to community. #W0' emphasizes on (uality of treatment to patients at affordable price. 6eing a pioneer in the new treatment method, with a strong capital, #W0' should be able to set a higher introductory price. Aowever, #W0' couldn2t do so due to limited source of funds available during the planning stage. %he same problem !ii" #trong 6usiness 'etworking 1ay has a strong business network with companies that develop and sell therapy e(uipment. %his benefited #W0' in terms of opportunity to test newly developed therapy !ii" 0vailability of ;ther Customer #upport e(uipment produced by the companies prior to commercialization. !iii" Well3=stablished 6rand 'ame #W0' is well recognized as rehab center for stroke victims. #W0'2s brand name often !iii" Aealth Insurance to =mployees used by the manufacturers as a marketing tool to promote their e(uipment that was tested8used by #W0'. #W0' is just a small growing business, at this stage #W0' cannot afford to provide good health insurance. 0t this stage #W0' provides monthly insurance allotment to its employees.
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e(uipment, designing and implementing new programming, and supervising employees. /oreover, 1ay is well3known through her tremendous C:s as follows

occurs during the planning stage of expansion project which resulted to the hiring ofexternal experts.

#ervices #W0' has no patient van as a mode to transportation their clients to the rehab clinic. %he clients have to go there by themselves.

St"en#t$s !iv" 9ricing #trategy 9roper surveys to keep their pricing e(ual to community standard. !v" .riendly, .eel Bood 0tmosphere to Clients and =mployees %he best (uality that attracts and maintain clients, the patients feel #W0' care for them and feel appreciated a. Clients 3 subse(uent services after service were taken care where #W0' contact patients and family members after discharge to update, send get3well card, sympathy card, flowers if there is a death in family 3 3 free trial and re3fitting of therapy e(uipment to patientC concern on knowledge sharing about stroke, brain injuries and other neurological diseases among patients and patient families through free seminar, lending library and during therapysession. b. =mployees 3 /aintain well educated employees through 3 continuous education including education funding. If there is new e(uipment, 1ay makes sure her staff get educated on how to use the e(uipment.

We%&nesses

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O''o"tunities Increasing 'umber of #troke :ictims %here are more than D??,??? new stroke victims every year and most of whom do not get proper therapy.

T$"e%ts !i" Competition =mergences of new clinics claim to be just like #W0'. 0s the number of stroke victim increase every year, other clinics that provide same services like #W0' also increasing.

!ii" 9osition8=ngagement in @elated ;rganization 1ay2s engagement in areas related to her !ii" subject matter can be seen as a platform to further expand the #W0'2s image. Aer current involvements include 3 speaker on courses to physical and occupational therapists on therapeutic intervention 3 3 3 3 president cum speaker at the 0rizona 9hysical %herapy 0ssociation presented proposals that were accepted at !iii" =conomic #tability national conventions active in professional associations engagement with the 0rizona #tate 5niversity on the usage of #W0'2s clinic for students2 projects involving stroke survivors. Inflation, availability of labor, increasing costs of e(uipment may implicate the #W0'2s operation in a long run. Bovernment2s @ules and @egulation %he enforcement of the 6alanced 6udget 0ct in $EED is a clear example of the had Bovernment2s intervention which

dampened the 5#2 healthcare industry. Aence, it is not possible that the same kind of regulation be introduced by the Bovernment to regulate the industry.

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