FINANCIAL RESOURCE MANAGEMENT IN HEALTHCARE SOLVED SOLUTION

A medical center is expanding its hospital staff to accommodate the increasing number of flu cases seen over the past weeks. Which type of finance activity is described in this scenario? - ANS-Cost A healthcare organization's senior finance leader is responsible for all financial plans and activities related to reimbursement, accounting, budgeting, and management for a healthcare system's financial well-being. Which role matches this description? - ANS-Chief financial officer The most common structures of hospitals are religious, secular, or academic. These organizations raise capital through donations and tax-exempt debt. What is the legal structure of hospitals that raise capital through these means? - ANSNot-for-profit: to meet charitable purposes An established diagnostic center needs a new mammogram machine. The center has incurred higher debt and is very highly leveraged but decides to apply for another secured loan at its local bank. What will the bank decide about the secured loan? - ANS-The interest rate will be higher. A private hospital with a successful history of traditional patient care is seeking to open a holistic treatment center off-site. It has secured an initial loan of five million dollars. How would the nature of this venture affect the interest rate that could be expected on the loan? - ANS-A higher interest rate loan due to the alternative patient care A healthcare organization has the following financial information available in a balance sheet: Assets: Cash of $10,000 Accounts receivable of $5,000 Machinery & equipment of $50,000 Liabilities: Accounts payable of $6,000 Loans payable of $25,000 Common stock of $34,000 The organization decides to use $5,000 of the organization cash reserves to pay off some of the loans payable of $25,000. What is the organization's business debt after the debt is paid off? - ANS-$26,000 A not-for-profit clinic is required to make monthly payments of $31,819.65 for the next 10 years to repay its long-term debt. The interest rate is 5%. What is the clinic's current level of business debt? - ANS-$3 million An insurance group is in the process of evaluating a zero coupon bond purchase from a healthcare organization that needs capital financing. On January 1, 2001, the bonds were purchased at a discounted rate of $6,757.04 with a 5.5% original-issue yield and semiannual compounding. On which date will they become due if these bonds have a face value of $20,000, and assuming the interest rates remain stable? - ANS-January 1, 2021 A healthcare company is a non-profit provider but has had problems maintaining any significant cash balance in its portfolio. The current market trend is favorable long-term interest rates, and the healthcare company wishes to build an addition and repay debt over 20 years. - ANS-Tax-exempt bonds A for-profit healthcare organization wants to maximize its return on investment (ROI) in a major equipment purchase by using a financial analysis technique that will determine the point at which the net present value is equal to zero. The capital decision will be based on an 8% current cost of capital throughout the life of the new equipment investment. Which financial analysis method is being used to determine the equipment purchase? - ANS-Internal rate of return An assisted living center administrator has determined that a renovation of the rehabilitation center will increase the profitability of the organization. Although interest expense will increase 80% from $200,000, the annual net income after renovation is projected to be one million dollars from the previous year's $400,000 profit. The times interest earned ratio industry standard is 3.25. How has this financial analysis impacted the renovation decision? - ANS-For every dollar in interest expense, the organization will earn $3.78 in profit. A hospital board of directors decides to purchase a surgical robot using a line of credit from a local bank. Surgical patient revenues are forecasted to increase by 15% as a result of this purchase...