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Finance: Relevant cost, oppurtunity cost.

An administrator at Saint Jude Hospital is considering how to use some space made available when the outpatient clinic moved to a new building. She has narrowed her choices, as follows:

a. Use the space to expand laboratory testing. Expected future annual revenue would be $330,000; future costs, $290,000.
b. Use the space to expand the eye clinic. Expected future annual revenue would be $500,000; future costs, $480,000.
c. The gift shop is rented by an independent retailer who wants to expand into the vacated space. The retailer has offered $11,000 for the yearly rental of the space. All operating expenses will be borne by the retailer.

The administrator's planning horizon is unsettled. However, she has decided that the yearly data given will suffice for guiding her decision.

Tabulate the total relevant data regarding the decision alternatives. Omit the concept of opportunity cost in one tabulation, but use the concept in a second tabulation. As the administrator, which tabulation would you prefer if you could receive only one?

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Solution Summary

The problem deals with problems in health care finance: opportunity cost and relevant data.