HCA105 Financial Practices for Health Care Organizations Section 2 - Estimating Bond Valuation Evergreen Hospital & Medical Research Centre plans to issue a tax-exempt bond at an annual coupon rate of 7 percent with a maturity of 15 years The par value of the bond is $9,000 a) If the market rate is 7%, what is the value of the bond? b) If the market rate falls to 6%, what is the value of the bond? c) If the market rate rises to 11 %, what is the value of the bond? d) At what market rate does the bond sell at a discount? does the bond sell at a premium? HCA105 Financial Practices for Health Care Organizations Section 5 - Calculating Return on Investment (R.O.I.) Northern Lights Hospital has built a new cardiac catheterization laboratory. The investment in this lab was $1,000,000 ($950,000 in equipment costs and $50,000 in installation costs) The desired return on investment (R.O.I.) is 12% 7,000 patients were served in the first year and charged $640. for each procedure Variable costs were $329. for each procedure Fixed costs for the lab were set at $2,000,000 Q: What was the lab's profit? Q: Did this profit meet the desired R.O..? Use the following formula to solve Revenues Variable Costs Profit Fixed Costs R.O.T. Initial Investment HCA105 Financial Practices for Health Care Organizations Section 4 (b) - Calculating Break Even Jonathan Lee, administrator of a diagnostic clinic, has been asked by the team members if it i feasible to add more staff (technologist aide) to support the practice of the clinic which currently has 2 diagnostic units and 2 technologists He has compiled the following information: Reimbursement per test Diagnostic unit lease per month per machine Diagnostic unit maintenance per month per machine Technologist cost per test Variable cost per test Technologist aide cost per test $140 $12,000 $9,000 $35 $13 $20 a) What is the patient volume needed to cover fixed and variable costs? b) What is the patient volume needed if the Centre wants to cover its fixed and variable costs and make a $3,000 profit? c) If the reimbursement decreases to $110 per test, what is the patient volume needed to cover fixed and variable costs but not profit? d) If a new technologist aide is hired, what is the patient volume needed at the original reimbursement rate to cover fixed and variable costs but not profit? See following formula that will be used to calculate for each answer HCA105 Financial Practices for Health Care Organizations (a) Solve for monthly volume to break-even Price x Volume x Volume + + + = Variable Cost per unit Total Fixed Costs Indirect Costs Desired Profit (b) Solve for monthly volume needed to break-even at desired profit level Price x Volume + = Variable Cost per unit x Volume + Total Fixed Costs + Indirect Costs Desired Profit (c) Solve for volume needed to break-even at the reduced price and no profit + Price x Volume = Variable Cost per unit x Volume + Total Fixed Costs + Indirect Costs Desired Profit (d) Solve for volume needed to break-even with additional labour (tech aide) cost X + Price x Volume = Variable Cost per unit Volume + Total Fixed Costs + Indirect Costs Desired Profit