Fargo Memorial Hospital has annual net patient revenue $($NPR$)$ of $$14\mathrm{.}4$ million. The hospitar'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 $90.$

a$.$ What is Fargo's average collection period? $($Assume $360$ days per year throughout this problem.$)$

b$.$ What is the firm's current recelvables balance?

c$.$ What would be the firm's new recelvables balance if a newly proposed electronic claims 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 clectronic claims system costs $$30,000$ a year to lease and operate, should it be adopted? $($Assume that the entire recelvables balance has to be financed.$)$

ANSWER

a$.$

Day

$30$

$60$

$90$

Percent who piy

Average collectlon period $=$

b$.$

Annual NPR

Days per year

NPR per day

Average collection perlod

Recelvables balance

c

Day

Percent who pay

$30$

$45$

$75$

$10\%$

$60\%$

$30\%$

Average collection period $=$

Annual NPR

Days per year

NPR per day

Average collectlon perlod

New roodvables balance