Assigned Problem 3 Fargo Memorial Hospital has annual net patient service revenues of $14.4 million. The hospital's patient accounts manager estimates that 10 percent of third party payers pay on Day 30, 60 percent pay on Day 60, and 30 percent pay on Day 90. Assume 360 days per year throughout this problem. a. What is Fargo's average collection period? b. What is the firm's current receivables balance? c. What would be the firm's new receivables balance if a newly proposed electronic daims system resulted in collecting from third-party payers in 45 and 75 days, instead of in 60 and 90 days? d. Suppose the firm's annual cost of carrying receivables was 10 percent. If the electronic daims system costs $30,000 a year to lease and operate, should it be adopted? (Assume that the entire receivables balance has to be financed.) ANSWER Day Percent who pay Average collection period Gross sales per year Days per year Gross sales per day Average collection period Receivables balance Day Percent who pay Average collection period Gross sales per year Days per year Gross sales per day Average collection period New receivables balance Old receivables balance New receivables balance Difference Carrying cost Carrying cost savings Cost of daims system Net benefit of daims system