Break-even, Return on Investment, Net Present Value

6 factors that affect costs

• volume (output)

• quality of output (higher increases cost)

• scope of output (diversification)

• input prices (higher increases cost)

• relative efficiency (higher lowers cost)

• regulations (more increases cost)

fixed cost

remain stable (doesn’t change) as volume increases

ex: IV hood certification fees, salaries

variable cost

increases as volume increases and vice versa

ex: labels, syringes, wages

economies of scale

causes marginal costs to decrease as volume increases - increased production efficiency

relevant range

capacity for efficient production

range in volume over which marginal const continues to decrease - once exceeded marginal costs increase

break-even point

when total revenue received equals total costs associated with sale of services/products

return on investment (ROI)

profit earned on investment

ROI = (investment total gain - investment cost)/investment cost

big positive ROI

GOOD - for every $ invested, getting more $ back

postive close to 0 ROI

might be able to find better way to invest my money

negative ROI

BAD - money pit

net present value (NPV)

est. absolute size of return (financial value) from project based on cash flow projections

+ and big NVP = GOOD

NPV vs ROI vs break-even

NPV accounts for time value of $ - ROI & break-even don’t