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 Webster's position with recommendations. Are Webster's bonds more likely to be rated as AA or BBB? Why?

Table III.5

Comparison of Financial Ratios by Bond Rating

Bond Grade

Days Cash on Hand

AA

194

BBB

53.6

Days in Accounts Receivables

58.0

47.7

Days in Current Liabilities

62.3

64.7

Cash to Debt (%)

153.9

37.9

Total Margin-%

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 Expenditures

as % of Depreciation Expense

169.9

76.2

Our annual interest cost of long-term borrowing would be 3.5 percent if our bonds were rated A"high grade" and 6.5 percent if rated "BBBbelow 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.