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GARY HUDSON WAS born and raised in Pensacola. Florida. He obtained his bachelor's degree in business from Florida State University, where he enrolled in the

GARY HUDSON WAS born and raised in Pensacola. Florida. He obtained his bachelor's degree in business from Florida State University, where he enrolled in the Naval Reserve Officers Training Corps program. After graduation, he received a commission in the US Marine Corps. Following his release from active duty, Gary used his GI Bill benefits to obtain a master's degree hi health services administration from the University of Florida. His first job in healthcare was as a special projects coordinator/financial analyst at a large Miami hospital. He enjoyed his work there, but his ultimate goal was to return to Pensacola as the manager of a small healthcare business, where he would have more responsibility and authority. After five years in Miami, Gary became the chief operating and financial officer of Gulf Shores Surgery Centers, an investor-owned chain of ambulatory surgery centers with six locations in Florida's Panhandle. Immediately after assuming his new position, Gary found himself facing several decisions. First, Gary had to select a bank or hanks to meet the financial needs of Gulf Shores. He has approached two local banksSun Trust and Bank Southabout the interest rates they offer on a savings account and a certificate of deposit (CD) as well as the rate charged on a term loan. Sun Trust and Bank South offer the same interest rate on each financial product and only differ in the frequency of compounding (exhibit IL I). Nominal EXHIBIT 11.1 Bank Product Compounding Interest Rate Financial Products Sun Trust Savings account Weekly 2.0% Certificate of deposit Monthly 3.0% Term loan Quarterly 4.0% Bank South Savings account Daily 2.0% Certificate of deposit Annually 3.0% Term loan Semiannually 4.0% Second, a wealthy patient was so impressed with the care she received at Gulf Shores that she decided to make a series of donations to the facility. She will donate $75,000 a year for the first six years (t = 1 through t = 6, where t = time) and $150.000 annually for the following six years (t = 7 through r = 12). The first deposit will be made a year from today (t = 1). In addition, she has just written 3 check for $250,000, which Gary will invest immediately (t = 0), Gary will invest all of the donations in a CD as they become available. CDs are generally offered in maturities of six months to ten years. and interest can be handled in one of two ways: the investor (buyer) can receive periodic interest payments, or the interest can automatically be reinvested in the CD. In the latter case, the buyer receives no interest during the life of the CD but receives the accumulated interest plus the principal amount at maturity. Because the goal of this investment is to accumulate funds for future use, as opposed to generating current income. all interest earned on the CD would be reinvested. Third. Gulf Shores may launch substantial building renovations. in this circumstance, it would be forced to borrow 5250.000 from a bank. Gary is considering two options for a team loan: 1. A five-year terns loan that would be repaid in equal annual installments. with the first payment due at the end of Year 1. Gary hopes to pay off the loan earlyat the end of Year 3. 2. A seven-year loan that would be repaid in annual installments of differing amounts. with the first payment due at the end of Year 1. For the first three years of the loan, the annual installment would be projected cash surpluses ($25,000 at the end of Year 1, $50,000 at the end of Year 2, and $75.000 at the end of Year 3). For the final four years of the loan.the annual installment would be a fixed (but currently unspecified) cash flow. X. at the end of each year from Year 4 through Year 7. Finally. Gulf Shores has a board-designated building fund to pay for projected facility renovations starting in eight years and lasting for four years (at t = 8, 9, 10, and 11) Current building renovation casts are estimated to be $14,500,000 a year, but they are expected to increase at a rate of 3.5 percent a year. So far, Gulf Shores has accumulated $15.000.000 at t =0). Gary's long-run financial plan is to add $5.000.000 in each of the next four years (at t = 1,2,3 and 4) Then he plans to make equal annual contributions in each of the following three years (t = 5. 6. and 7) All of the decisions Gary faces involve time value analysis. Gary Hudson, the chief operating and financial officer of Gulf Shore Surgery Centers needs to make important financial decisions for his employer. He has engaged your group for professional consultancy services. Applying the concepts learned so far, submit your written report with recommendations following the instructions below. 1. a. As consultants, draw timelines that illustrate Garys situation described in the case study. Include all investments, cashflows and interest rates, etc, from t = 0 through t = 12.(Guide: refer to chapter 3, Time Value Analysis, Timelines) b. Briefly explain to Gary the importance of using a timeline. 2. a. Considering the differences in the frequency of compounding offered by Sun Trust and Bank South, which bank should Gary select? Justify your choice with related illustrations. (Guide: refer to chapter 3, Time Value Analysis, compounding). 3. Describe Term loans and their characteristics (advantages and disadvantages).b. Which of the two term loan options should Gary consider for borrowing $250,000?Justify your choice with related illustrations. c. (i) Should Gary borrow the $250,000 at all? (ii) Are there other funding alternatives you can recommend for the building renovation? (Guide: refer to chapter 5, Debt Financing, Term Loans). 4. Considering all the information gathered; the board-designated building fund available to Gulf Shore for facility renovations, the starting and ending years, etc., (a) Do you think Gulf Shore should proceed and (b) will they be successful at completing their projected building renovation? Explain.

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