Fargo Memorial Hospital has annual net patient revenue (NPR) 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.
a. What is Fargo's average collection period? (Assume 360 days per year throughout this problem.)
b. What is the firm's current receivables balance?
c. What would be the firm's new receivables 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 electronic claims
system costs $30,000 a year to lease and operate, should it be adopted? (Assume that the entire
receivables balance has to be financed.)
Please show/ explain your work or calc. so I can follow it.
ANSWER