Questions and Answers of Financial Management Theory

Problem 12.1 A physician’s practice performs five procedures that consume varying amounts of salary, supply, and service resources. Procedure A requires$150 per procedure for salaries, $50 for
Problem 11.15 The following cost performance data have just become available. Use bilateral performance mapping to determine which departments should be examined first and last for possible cost
Problem 11.14 A cost analysis of a ABC Health Clinic has been performed and has determined the following: Based on the latest three years of information, your annual cost of operations is $1,600,000
Problem 11.13 Memorial Community Hospital performs 500 hip replacements each year.The average reimbursement is $10,000 per case. The direct cost of the procedure averages $11,500, which includes
Problem 11.12 A colleague has suggested hiring a nurse practitioner (NP) for a physician practice. The annual salary cost is estimated to be $83,000 plus fringe benefits of an additional 25%. The
Problem 11.11 A new service can be offered at a price of $1,100. Demand is anticipated to be 8,000 units a year. The business is able to handle up to 16,500 units annually, so capacity should not be
Problem 11.10 A new diagnostic procedure can be offered at a price of $25 per test.The patient population is anticipated to be 40% commercially insured patients, 40% Medicare, and 20% self-paying.
Problem 11.9 A business that operates 7 days a week, 24 hours a day, is looking for ways to improve its bottom-line performance. One possibility is a new automated charting system that will allow for
Problem 11.8 A new piece of equipment with a life of six years will make a clinical operation more efficient. The equipment purchase price is $4,500,000 plus a 10% installation fee. The purchase
Problem 11.7 A new procedure can be offered at a price of $1,500. The collection rate is expected to be 75%. Demand is anticipated to be 800 units in year one, growing by 25% each year thereafter
Problem 11.6 Currently, pharmacy costs in the hospital’s ICUs average $2,600 per case.The hospital is paid entirely on a DRG-based payment system. On average, the surgical intensive care unit
Problem 11.5 A new procedure for which demand is anticipated to be 1,200 units annually can be offered at a price of $1,400. The patient population is anticipated to be 80% commercially insured
Problem 11.4 Prepare a forecast of expenses for the entirety of fiscal year 20X3 which runs from January 1 to December 31, 20X3. In addition to the numbers shown in the most recent Departmental
Problem 11.3 Use the following information about supply consumption to determine the usage and price variances. The department is considered to be 100%variable with volume. Actual units of service
Problem 11.2 Explain the cause(s) of the salary variance. The department is considered 100% fixed. Actual salaries were $228,800 versus a budget of$237,120. Paid hours were 20,800 compared to a
Problem 11.1 Using the following performance data, calculate the volume-adjusted labor rate variance and volume-adjusted efficiency variance. The department is considered 60% variable?
Problem 9.2 Several different payers reimburse for a new diagnostic test. Each pays a different percentage of the charge. Program 1 will cover 80% of charges for 15% of the patients; program 2 will
Problem 9.1 Using the audited financial statements of the Care Giver Healthcare Center, calculate the following financial ratios: current ratio, quick ratio, the number of days of revenue in accounts
Problem 6.7 The following table indicates the annual volume experienced for the most recently completed fiscal years and the first five months of the current fiscal year (FY 20X8). Based on this
Problem 6.6 Prepare a revenue budget that includes both gross and net revenue for the upcoming fiscal year. The target use rate is 80% of capacity. The department is capable of performing 27,375
Problem 6.5 Assuming that 20% of paid time is spent away from the workplace on vacation, sick time, holiday, and so on, how many FTEs of staff are needed to perform 80,000 screening tests if each
Problem 6.4 A researcher is putting together a grant application for a research project that will study the effect of a new drug to treat budgetitis. The grant will cover three years beginning on
Problem 3.2 The following table displays information about the cost profile of your department. What is the average cost of an encounter? What is the marginal cost of an encounter?
Problem 3.1 Using the following information, develop a set of prices for the three revenue centers (inpatient services—price per patient day, outpatient services—price per visit, and ancillary
Problem 2.4 A new business venture will begin operation on July 1, 20X3. Staff will be hired effective January 1, 20X3, at a cost of $40,000 per month. It is known from experience that collections
Problem 2.3 An organization acquired new computer scheduling equipment on January 1 for $4,000,000. The useful life of the equipment is eight years and the salvage value is $400,000. Using the
Problem 2.2 A diagnostic services company acquired digital angiography equipment on January 1 for $1,300,000. The useful life of the equipment is 10 years and the salvage value is $200,000. Using the
Problem 2.1 The accounts receivable balance on November 30, 20XX, is $6,300,000 and the allowance for doubtful accounts is $1,200,000. The receivable is made up of numerous accounts billed during the
What are the clinical, operational, and financial impacts?
What value does the new equipment add to the organization and its staff and patients?
Can the organization afford not to acquire this equipment?
Is the new equipment better than what it is replacing?
Does this represent good science?
Are the financial and business projections sound?
Does it fill a gap in the care continuum?
Does it demonstrate improved quality and/or patient safety?
Is it consistent with the strategic plan?
Does it create new or expand existing market opportunities?
Does the requested equipment fit the mission of the organization?
Are there any staff behaviors that may influence the decision?
Is the staff sophisticated enough to use the equipment to its full potential?
What will installation cost?
Is sufficient space available?
Will the mechanical, electrical, plumbing, HVAC, and other facility infrastructure components support it?
How easy is it to install the requested equipment?
Are replacement and maintenance parts readily available?
Who will maintain the equipment?
Do supply costs increase, decrease, or remain the same?
If a layoff “bump” is involved, what will be the likely effect on other departments?
In a unionized environment, what will be the effect of contractually guaranteed “bumping” rights (for staff reductions) and with the promotional bid system (for staff additions)?
If a reduction in staff is involved because of an equipment-related productivity issue, will attrition or a layoff be used to reduce the workforce?
Must staff be specially trained? If so, on-site or at a remote location?
Will labor market shortages compromise the ability to recruit staff?
Are staff available internally or must they be recruited from outside the organization?
What kinds of skills must incremental staff possess?
What additions, reductions, or changes to the staff complement will be needed to support the new piece of equipment?
Will any incremental revenue be deemed to be “experimental” by third-party payers? If not covered by insurance, at what rate will incremental revenues be collected?
Will the new equipment improve the collection of revenue?
How much of any incremental revenue will be realized in a cost reimbursement environment? In a rate-controlled environment?
Will prices be increased to afford the requested acquisition?
Will prices be modified because of the change in volume?
What effect will reimbursement methodologies such as global budgets or case-based reimbursement have on revenues and collections?
How much of any incremental revenue will be collected?
What changes will there be to revenues in departments other than the requesting department?
What is the effect of the change in volume on gross revenue? Inpatient revenue? Outpatient revenue? Ancillary revenue?
Will incremental volume attributable to the new equipment exceed the department’s capacity?
Will volume change in departments other than the one requesting the equipment or renovations?
Will there be increases in some and decreases in others?
Will volume be reduced?
Will additional units of volume be generated?
What is the effect on units of service volume?
5. Union Fidelity Company (UFC) has the following ratios for the years 1999 through 2003:a. Calculate UFC's sustainable growth rate for each year.b. Does UFC have a growth problem?c. How did UFC cope
4. Robert Half International, Inc. (RHI), headquartered in Menlo Park, California, is the world's first and largest provider of temporary and permanent personnel in accounting, finance, and
3. PCA International, Inc., is one of the largest color portrait photogra- phy chains in North America. The company photographs, develops, and sells portrait packages through studios operated in
9. Toys-4-Kids manufactures plastic toys. Sales and production are highly seasonal. Below is a quarterly pro forma forecast indicating external financing needs for 2006. Assumptions are in
7. Continuing problem 6, Pepperton's annual income statement and balance sheet for December 31, 2005 appear below. Additional infor- mation about the company's accounting methods and the treasurer's
2. Harlin Fencing Company's sales, all on credit, for the past three months were:a. Estimate Harlin's cash receipts in October if the company's collec- tion period is 30 days.b. Estimate Harlin's
7. Answer the questions below based on the following information. Taxes are 35 percent and all dollars are in millions.a. Calculate each company's ROE, ROA, and ROIC.b. Why is company Z's ROE so much
5. Financial data for HomeDepot.com Inc. follows: ($ in thousands)a. Calculate the current and quick ratio at the end of each year. How has the company's short-term liquidity changed over this
12. Below are summary cash flow statements for three roughly equal-size companiesa. Calculate each company's cash balance at the end of the year.b. Explain what might cause company C's net cash from
11. Selected information about Sam 'n' Ella's Chicken Delight, a chain of hot new restaurants, follows.a. During 2006 how much cash did Sam 'n' Ella's collect from sales?b. During 2006 what was the
6. You will need to use the Standard & Poor's Market Insight website (www.mhhe.com/edumarketinsight) for this problem.a. For fiscal year 2004, what is the largest single asset on Boeing Company's
2. Table 3.1 in the last chapter presents R&E Supplies' financial state- ments for the period 2002 through 2005, and Table 3.5 presents a pro forma financial forecast for 2006. Use the information in
5. Procureps, Inc. (P), is considering two possible acquisitions, neither of which promises any enhancements or synergistic benefits. V1 is a poorly performing firm in a declining industry with a
6. Ametek, Inc., is a billion dollar manufacturer of electronic instruments and motors headquartered in Paoli, Pennsylvania. Use the following information on Ametek and five other similar companies
8. (Read the chapter appendix before attempting this problem.) A com- pany is considering the following investment opportunities.a. If the company can raise large amounts of money at an annual cost
8. (You will need a computer for this problem.) The following informa- tion is available about an investment opportunity. Investment will occur at time 0 and sales will commence at time 1.a. Prepare
9. This is a more difficult but informative problem. James Brodrick & Sons, Inc., is growing rapidly and, if at all possible, would like to fi- nance its growth without selling new equity.
10. (This problem tests your understanding of the chapter appendix.) Sweat Equity Appliance, Inc., a private firm that manufactures home appliances, has hired you to estimate the company's beta. You
10. Using the information below, please answer the following questions below about Surelock Homes, a start-up company. In your analysis, assume the valuation date is the end of year 6, projected
11. As the financial vice president for Aether Media, you have the follow- ing information:a. Calculate Aether's times-interest-earned ratio for next year assum- ing the firm raises $40 million of
11. Use the Standard & Poor's Market Insight website (www.mhhe.com/ edumarketinsight) for this problem. Assume Starbucks Corporation is reviewing the cost of equity and the WACC it uses to
4. You have the following information about Burgundy Basins, a sink manufacturer.4. You have the following information about Burgundy Basins, a sink manufacturer.Burgundy is contemplating what for
15. Use Standard & Poor's Market Insight website (www.mhhe.com/ edumarketinsight) for this problem.a. What was the ratio of the market value of equity to the book value of equity for eBay, Inc. at
14. Use Standard & Poor's Market Insight website (www.mhhe.com/ edumarketinsight) for this problem. Yahoo Inc. reported a $92.8 million. loss in 2001.a. Does this necessarily mean the company's
13. Epic Record's equity has a market value of $5 million with 500,000 shares outstanding. The book value of its equity is $1,750,000.a. What is Epic's stock price per share? What is its book value
8. You manage a real estate investment company. One year ago the company purchased 10 parcels of land distributed throughout the community for $1 million each. A recent appraisal of the properties
7. You are responsible for labor relations in your company. During heated labor negotiations, the General Secretary of your largest union exclaims, "Look, this company has $10 billion in assets, $5
6. Table 3.1 in Chapter 3 presents financial statements over the period 2002-2005 for R&E Supplies, Inc.a. Construct a sources and uses statement for the company over this period (one statement for
3. Why do you suppose financial statements are constructed on an ac- crual basis rather than a cash basis when cash accounting is so much easier to understand?

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