OHA has indicated that we should maintain a debt to asset ratio no higher than 40 percent. Given this, how much additional long-term debt could have been added in 2017? We would use this additional debt to finance new construction, renovations, and the acquisition of technology. To finance this additional long-term debt we would use bonds. As such, we need to assess our credit worthiness. The following are the select median values for specific financial ratios for hospitals that received below investment grade (BBB) and high investment grade (AA) bond ratings. Assess and report Websters position with recommendations. Are Websters bonds more likely to be rated as AA or BBB? Why?

Table III.5 Comparison of Financial Ratios by Bond Rating

Bond Grade AA BBB

Days Cash on Hand 194 53.6

Days in Accounts Receivables 58.0 47.7

Days in Current Liabilites 62.3 64.7

Cash to Debt (%) 153.9 37.9

Total Marign -% 4.1 (0.3)

Salaries and benefit costs as

% of Total Revenue 49.9 56.3

Average Age of Plant (years) 9.5 13.4

Capital Expenditrues as % of Depreciation Expense 169.9 76.2

Our annual interest cost of long-term borrowing would be 3.0 percent if our bonds were rated high grade and 7.5 percent if rated below investment grade. Assume that ten- year bonds are used to finance this additional debt. What would be the annual principal and interest payment for this amount? Can Webster Hospital afford this increased annual expense? Note that for every $100,000 borrowed over ten years, our monthly payments would be $989 at 3.5 percent or $1,136 at 6.5 percent.