Questions and Answers of Financial Management For Public Health

Investments. Identify the alternatives for investing cash on a short-term basis, and discuss the general characteristics of each alternative.
Accounts receivable. List three ways to measure accounts receivable performance.
Accounts receivable. Two methods to monitor accounts receivable are as a percentage of net patient revenues and as days in accounts receivable. What factor can cause the former to be a better measure
Accounts receivable. Identify and define two methods to finance accounts receivable.
Trade credit discount. Compute the approximate annual interest cost of not taking a discount, using each of the following scenarios. What conclusion can be drawn from the calculations?a. 2/10 net
Trade credit discount. Compute the approximate annual interest cost of not taking a discount using the following scenarios. What conclusion can be drawn from the calculations?a. 1/15 net 20.b. 1/15
Trade credit discount. Compute the approximate annual interest cost of not taking a discount using the following scenarios. What conclusion can be drawn from the calculations?a. 2/5 net 30.b. 2/10
Trade credit discount. Compute the approximate annual interest cost of not taking a discount using the following scenarios. What conclusion can be drawn from the calculations?a. 1/5 net 30.b. 1/10
Trade credit discount. Compute the approximate annual interest cost of not taking a discount using the following scenarios. What conclusion can be drawn from the calculations?a. 1/15 net 30.b. 2/15
Trade credit discount. Compute the approximate annual interest cost of not taking a discount using the following scenarios. What conclusion can be drawn from the calculations?a. 1/10 net 30.b. 2/10
Accounts receivable management. Assume there are two physician groups, Lower Merion Physician Group and Penncrest Medical Practice, and both groups have contracts with two major health plans.a. Use
Accounts receivable management. Given the information below, compute the days in accounts receivable, aging schedule, and accounts receivable as a percentage of net patient revenues for quarter 1 and
Accounts receivable management. Given the information below, compute the days in accounts receivable, aging schedule, and accounts receivable as a percentage of net patient revenues for quarter 1 and
Accounts receivable management. Given the information below, compute the days in accounts receivable, aging schedule, and accounts receivable as a percentage of net patient revenues for quarter 1 and
Compensating balance. On January 2, 20X1, Uptown Hospital established a line of credit with First Union National Bank. The terms of the line of credit called for a $400,000 maximum loan with an
Compensating balance. Tuckhoe Hospital wishes to establish a line of credit with a bank.The first bank’s terms call for a $600,000 maximum loan with an interest rate of 3 percent and a $2,000 fee.
Cash budget. Jim Zeeman Clinic provided the financial information in Exhibit 5.14.Prepare a cash budget for the clinic for the quarter ending March 20X1. EXHIBIT 5.14 JIM ZEEMAN CLINIC Givens
Cash budget. Iowa Imaging Center provided the financial information in Exhibit 5.15.Prepare a cash budget for the center for the quarter ending March 20X1. EXHIBIT 5.15 IOWA IMAGING CENTER Givens
Cash budget. Martha Zeeman Clinic provided the financial information in Exhibit 5.16.Prepare a cash budget for the clinic for the quarter ending March 20X1. EXHIBIT 5.16 MARTHA ZEEMAN CLINIC Givens
Cash budget. Rose Valley Rehab Facility provided the financial information in Exhibit 5.17.Prepare a cash budget for the facility for the quarter ending March 20X1. EXHIBIT 5.17 ROSE VALLEY REHAB
Cash budget. How would the cash budget in problem 41 change if new credit and collection policies were implemented such that collections resulted as follows:a. 30%: current month of patient
Cash budget. How would the cash budget in problem 42 change if new credit and collection policies were implemented such that collections resulted as follows:a. 40%: current month of patient
Discounts. Martha Zeeman Clinic (Exhibit 5.16) is going to take better advantage of credit terms offered by suppliers. The clinic has negotiated a 3 percent discount for all supplies purchased
Discounts. Rose Valley Clinic (Exhibit 5.17) is going to take better advantage of credit terms offered by suppliers. The clinic has negotiated a 3 percent discount for all supplies purchased
Revenue cycle management. Malvern Hospital generated net patient revenues of $150 million for 20X1, and its cash collections were $125 million. The revenue cycle management costs to collect these
Revenue cycle management. Penn Hospital generated net patient revenues of $225 million for 20X1, and its cash collections were $210 million. The revenue cycle management costs to collect these
Definitions. Define the key terms listed previously.
Simple and compound interest. What is the difference between simple interest and compound interest?
Defining future value equation terms. Write out the equation to find the future value of a single amount, and define each of the terms in it.
Defining the exponent. Does the n in the formula (1 + i)n always mean compounding on an annual basis?
Multiple compounding periods in a year. How should the future value equation be modified when compounding occurs more frequently than annually?
Multiple compounding periods in a year. What is the future value of $10,000 with an interest rate of 16 percent and one annual period of compounding? With an annual interest rate of 16 percent and
Multiple compounding periods in a year. Referring to the answer to Question 6, explain why the investment increases in value when the number of compounding periods increases.
Present and future value factors. What is the relationship between the present value factor and the future value factor?
Present value factor and discount rate. What happens to the present value factor as the discount rate or the interest rate increases for a given time period? As the discount rate or the interest rate
Relationship between an ordinary annuity and an annuity due. Compare the present value of a $6,000 ordinary annuity at 10 percent interest for ten years with the present value of a $6,000 annuity due
Perpetuities. How many years are there in a typical perpetuity?
Factors. What is the relationship between the future value factor for five years at 5 percent and the present value factor for five years at 5 percent?
Future value of an annuity table. In the future value annuity table, why is the future value factor for a one-year annuity equal to 1.00 at any interest rate?
Present value of an amount and present value of an annuity. What is the relationship between the present value of a single dollar payment formula and the present value of an ordinary annuity formula
If a nurse deposits $12,000 today in a real estate investment trust (REIT) and the interest is compounded annually at 7 percent, what will be the value of this investment:a. Five years from now?b.
If a nurse deposits $24,000 today in a mutual fund that is expected to grow at an annual rate of 8 percent, what will be the value of this investment:a. Three years from now?b. Six years from now?c.
If a business manager deposits $60,000 in a bond fund at the end of each year for twenty years, what will be the value of her investment:a. At a compounded rate of 6 percent?b. At a compounded rate
If a business manager deposits $60,000 in a bond fund at the end of each year for twenty years, what will be the value of his investment:a. At a compounded rate of 7 percent?b. At a compounded rate
The chief financial officer of a home health agency needs to determine the present value of a $120,000 investment received at the end of year
What is the present value if the discount rate isa. 3 percent?b. 6 percent?c. 9 percent?d. 12 percent?
The chief financial officer of a home health agency needs to determine the present value of a $120,000 investment received at the end of year
What is the present value if the discount rate isa. 4 percent?b. 6 percent?c. 8 percent?d. 10 percent?
If a hospital received $7,500 in payments per year at the end of each year for the next twelve years from an uninsured patient who underwent an expensive operation, what would be the current value of
If a hospital received $15,000 in payments per year at the end of each year for the next six years from an uninsured patient who underwent an expensive operation, what would be the current value of
After completing her residency, an obstetrician plans to invest $25,000 per year at the end of each year into a low-risk retirement account. She expects to earn 5 percent for thirty-five years. What
After completing his residency, an oncologist plans to invest $30,000 per year at the end of each year into a high-risk retirement account. He expects to earn 7 percent for thirtyfive years. What
Washington Memorial Hospital has just been informed that a private donor is willing to contribute $15 million per year at the beginning of each year for fifteen years. What is the current dollar
Carson City Hospital has just been informed that a private donor is willing to contribute$20 million per year at the beginning of each year for fifteen years. What is the current dollar value of this
If Uptown clinic invested $3,000 in excess cash today, what would be the value of its investment at the end of three years:a. At a 16 percent annual rate compounded semiannually?b. At a 16 percent
If Summit Hospital invested $10,000 in excess cash today, what would be the value of its investment at the end of three years:a. At an 8 percent annual rate compounded semiannually?b. At an 8 percent
Erie General Hospital wants to purchase a new blood analyzing device today. Its local bank is willing to lend it the money to buy the analyzer at a 2 percent monthly rate. The loan payments will
Memorial Hospital wants to purchase a new MRI machine today. Its local bank is willing to lend it the money to buy the MRI machine at a 1 percent monthly rate. The loan payments will start at the end
Regal Medical Center is starting an endowment fund to pay for the expenses of a medical research program. The expenses are $5 million per year, and the program is expected to last ten years. Assuming
Downtown Medical Center is starting an endowment fund to pay for the expenses of a community outreach pediatric program. The expenses are $800,000 per year, and the program is expected to last five
In 2010, James County Hospital’s total patient revenues were $30 million. In 2019, patient revenues are expected to be $60 million. What is the compound growth rate in patient revenues over this
In 2011, King County Hospital’s total patient revenues were $15 million. In 2020, patient revenues are expected to be $38.37 million. What is the compound growth rate in patient revenues over this
Upland Family Practice Center plans to invest $60,000 in a money market account at the beginning of each year for the next five years. The investment pays 3 percent annual interest. How much would
Starting today and every six months thereafter for the next ten years, St. Joan’s Hospital plans to invest $1,750,000 at 5 percent semiannual interest in an account. How much would this investment
Dr. Rivas plans to retire today and would like an income of $500,000 per year for the next fifteen years, with the income payments starting one year from today. He will be able to earn interest of 6
Today Hopewell Hospital lends its Home Health Care Center $938,510. The center expects to repay the loan in quarterly installments of $100,000 for three years, with the first payment starting one
Big Sky Cancer Research Institute just received a $4 million gift to cover the salary for a permanent research scientist to study Hodgkin’s disease, in perpetuity. What would be the required rate
Upon the untimely and tragic death of their wealthy uncle, his heirs wanted to memorialize him with a named donation to the local hospital. They offered the hospital a choice of $60,000 annual
Darby Hospital is borrowing $81 million for its medical office building. The annual interest rate is 4 percent. What will be the equal annual payments on the loan if the length of the loan is four
Lima Nursing Home is investing in a restricted fund for a new assisted living home that will cost $16 million. How much does it need to invest each year to have $16 million in fifteen years:a. If the
Bishop Sheen Hospital is evaluating a lease arrangement for its ambulance fleet. The total value of the lease is $620,000. The hospital will be making equal monthly payments starting today.a. What is
A wealthy philanthropist has established the following endowment for a hospital. The details of the endowment include the following:a. A cash deposit of $19 million one year from now.b. An annual
Definitions. Define the key terms listed previously.
Comment on the following statement: When a not-for-profit facility receives a contribution from a member of the community, the cost of capital is inconsequential when deciding how to use this
From a capital investment point of view, what are the goals of a health care facility?
What are the primary drawbacks of the payback method as a capital budgeting technique?
When using the IRR approach, when can the internal rate of return be determined simply by dividing the initial outlay by the cash flows?
Why do pro forma income statements adjust for depreciation expense when developing projected cash flows for a project?
If a hospital were considering a new women’s health initiative, what spillover cash flows might result?
When performing a capital budgeting analysis, what costs should be included and what costs should be excluded as part of an initial investment?
Why are financing flows such as interest expense and dividend payments excluded from the computation of cash flows?
Would a decision that is based on NPV ever change if it were based on IRR instead? Why or why not?
Alameda Hospital is expecting its new cancer center to generate the following cash flows:a. Determine the payback for the new cancer center.b. Determine the net present value using a cost of capital
Washington Community is expecting its new dialysis unit to generate the following cash flows:a. Determine the payback for the new dialysis unit.b. Determine the NPV using a cost of capital of 15
St. Rose Hospital expects Projects A and B to generate the following cash flows:a. Determine the NPV for both projects using a cost of capital of 20 percent.b. Determine the NPV for both projects
Valley Care Medical Center expects Projects X and Y to generate the following cash flows:a. Determine the NPV for both projects using a cost of capital of 17 percent.b. Determine the NPV for both
Kaiser Oakland Practice expects Projects 1 and 2 to generate the following cash flows:a. Determine the payback for both projects.b. Determine the IRR.c. Determine the NPV at a cost of capital of 12
Colusa Regional Medical Center expects Alpha Project and Beta Project to generate the following:a. Determine the payback for both projects.b. Determine the IRR.c. Determine the NPV at a cost of
Biggs-Gridley Memorial Hospital, a nontaxpaying entity, is starting a new inpatient heart center on its third floor. The expected patient volume demands will generate $5,000,000 per year in revenues
Marshall Healthcare System, a nontaxpaying entity, is planning to purchase imaging equipment, including an MRI and ultrasonogram equipment, for its new imaging center.The equipment will generate
Due to rising utility costs, Los Medanos Community Hospital wants to replace its existing computer-controlled heating, ventilation, and air-conditioning (HVAC) system with a more efficient version.
Because of its inability to control film and personnel costs in its radiology department, Sanger General Hospital wants to replace its existing picture archive and communication(PAC) system with a
Calexico Hospital plans to invest in a new MRI. The cost of the MRI is $1,800,000. The machine has an economic life of five years, and it will be depreciated over a five-year life to a $200,000
Glenn Medical Center has seen a growth in patient volume since its primary competitor decided to relocate to a different area of the city. To accommodate this growth, a consultant has advised Glenn
Long-Term Acute-Care Hospital (LTAC) owns an abandoned warehouse. The after-tax value of the land is $800,000. The furniture and fixtures of the warehouse have been fully depreciated to an after-tax
Heart Hospital is in possession of a nonoperational, fifty-bed hospital. The after-tax value of the land is $2,500,000. The equipment and the building are fully depreciated and have an after-tax
Kern Valley Hospital, a taxpaying entity, wants to replace its current labor-intensive telemedicine system with a new automated version that would cost $3,500,000 to purchase.This new system has a
Topping Medical Center, a for-profit institution, wants to replace its film-based mammography equipment with new digital models. The cost of the new digital models is $3,500,000.The current models
Sutter Lakeside Hospital, a taxpaying entity, is considering a new ambulatory surgical center (ASC). The building and equipment for the new ASC will cost $5,500,000. The equipment and building will
Garfield Medical System, a taxpaying entity, is considering a new orthopedic center.The building and equipment for the new center will cost $7,500,000. The equipment and building will be depreciated

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