FIN 111 WALTON MEDICAL LABORATORY/TUTORIALOUTLET DOT COM FIN 111 WALTON MEDICAL LABORATORY/TUTORIALOUTLET D

FIN 111 WALTON MEDICAL LABORATORY
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WALTON MEDICAL LABORATORY
Margaret Walton spent 10 years working in the laboratory at City
Hospital. During that time she advanced to the position of director of
the laboratory. Because she felt that opportunities for further
advancement at the hospital were limited, she decided that she would
open an independent laboratory to provide medical tests for private
medical practices. She believed that she could help physicians reduce
both their capital requirements and their administrative chores.
Walton began assembling information. She discovered a piece of land
available near a number of private medical practices. The land could
be purchased for $100,000, and a suitable building would cost
approximately $400,000. The building would have a useful life of
approximately 40 years and have 31 years for tax purposes.
Laboratory equipment would cost $1,000,000. The equipment would
have a life of 7 years for tax purposes, but would actually last 10
years. The building and the equipment will be depreciated to zero
under the straight-line method. Although the business could continue
indefinitely, Walton wanted to do the analysis based on the
assumption of a life similar to that of the laboratory equipment: 10
years.
In addition to fixed assets, working capital would be needed. Walton
wanted to maintain a minimum cash balance of $20,000. She
estimated that accounts receivable would rise to $40,000 within a
short period of time. She estimated initial accounts payable at
$40,000. She estimated that all working capital categories would
double by the end of the first year and would not increase thereafter.
Working capital, like other assets, required a cash outlay. However,
accounts payable decreased the cash need. Therefore, Walton
anticipated an initial cash outlay of $20,000 for working capital,