Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Mrs . Mary Atkins, age 6 6 , has been your firm's client for five years, since the death of her husband, Dr . Charles

Mrs. Mary Atkins, age 66, has been your firm's client for five years, since the death of her husband, Dr. Charles Atkins. Dr. Atkins
had built a successful newspaper business that he sold two years before his death to Merit Enterprises, a publishing and broadcasting
conglomerate, in exchange for Merit common stock. The Atkinses have no children, and their wills provide that upon their deaths
the remaining assets shall be used to create a fund for the benefit of Good Samaritan Hospital, to be called the Atkins Endowment
Fund.
Good Samaritan is a 180-bed, not-for-profit hospital with an annual operating budget of $12.5 million. In the past, the hospital's
operating revenues have often been sufficient to meet operating expenses and occasionally even generate a small surplus. In recent
years, however, rising costs and declining occupancy rates have caused Good Samaritan to run a deficit. The operating deficit has
averaged $300,000 to $400,000 annually over the last several years. Existing endowment assets (that is, excluding the Atkins's estate)
of $7.5 million currently generate approximately $375,000 of annual income, up from less than $200,000 five years ago. This
increased income has been the result of somewhat higher interest rates, as well as a shift in asset mix toward more bonds. To offset
operating deficits, the Good Samaritan Board of Governors has determined that the endowment's current income should be
increased to approximately 6% of total assets (up from 5% currently). The hospital has not received any significant additions to its
endowment assets in the past five years.
Identify and describe an appropriate set of investment objectives and constraints for the Atkins Endowment Fund to be created after
Mrs. Atkins's death.
Questions to answer:
This question is about Mrs. Mary Atkins and the Good Samaritan Hospital.
1)What is the hospitals investment objective here?
2)Lets change the problem and assume that the annual operating deficit is $685,000 per year.
Given your answer to 1), and assuming that the operating deficit is $685,000 per year, and the fact that the existing endowment assets are $7.5milion, how much must Mrs. Atkins estate be worth (assume she will donate all of it to the hospital endowment in her will)?
3)What investment horizon is the hospital and the endowment fund looking at here?
4)What do you think its attitude toward risk should be?
5)Assess its liquidity needs.
6)Tax considerations?
7)Are there any income considerations?
8)Any unique needs or factors to consider investing Mrs. Atkins bequest?
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Markets And Institutions

Authors: Jeff Madura

13th Edition

0357130790, 978-0357130797

More Books

Students also viewed these Finance questions

Question

=+c. How would you characterize the smallest 2% of all droplets?

Answered: 1 week ago

Question

f. What subspecialties and specializations does the person list?

Answered: 1 week ago