Commonwealth Orthopedics, a private orthopedic practice in Newport

News, Virginia, has decided to expand its physical therapy services by

opening a physical therapy center. Three site options for the center are

currently under consideration: (1) a property lease at Heritage Medical

Park, (2) a joint venture investment in a property in Towne Center, and (3)

purchase of an existing practice in East End.

Average payment for physical therapy services is $90 per visit. Variable

costs are projected to be $35 per visit for all locations under

consideration. Fixed costs at the Heritage Medical Park are expected to

be $425,000; fixed costs for the Towne Center investment are expected

to be $361,608; fixed costs for the existing practice in East End are

$328,302.

a. How many visits are necessary at each location to break even (realize

$0 in profits)?

b. If expected visits are 13,700, 13,250, and 12,500 for locations A, B,

and C, respectively, which location should be chosen based on total

cost?

c. If expected visits are 13,700, 13,250, and 12,500 for locations A, B,

and C, respectively, which location should be chosen based on total

profits?

d. Determine the sensitivity of the decision in part (c) to a +/–20 percent

fluctuation in visits.