Scenario 2: Serenity Health Care Serenity Health Care is a large integrated health care system located in the Midwest. It has a 100-year tradition of providing quality patient care to its customers regardless of their ability to pay for services. Recently, the chair of the board of directors and the chief executive officer (CEO) of Hall Healthcare System, a competitive organization, approached Serenitys CEO about a partnership because of its inability to continue to compete with Serenity and its declining financial performance. Because Serenity is three times larger than Hall, the CEO would like to present to his board of directors a proposal in which Serenity acquires Hall Healthcare System. Here is the information that he plans to present to the board: 2015 2014 Current assets Cash and cash equivalents $2,275,884 $7,900,318 Short-term investments $3,945,998 $1,287,932 Receivables, less doubtful accounts $4,958,923 $4,000,891 Other current assets (inventory) $2,667,391 $5,590,076 Total current assets $13,848,196 $18,779,217 Limited-use assets $2,397,421 $4,932,097 Property and equipment $4,510,961 $3,982,018 Other long-term assets $2,301,810 $2,367,809 Total assets $23,058,388 $30,061,141 Liabilities and net assets Current liabilities Current portion of long-term debt $850,000 $1,562,091 Accounts payable $3,120,692 $5,990,128 Estimated third-party settlements $962,908 $1,409,610 Accrued salaries, wages, and fees $5,837,624 $7,903,871 Other accrued liabilities $2,163,187 $2,843,098 Total current liabilities $12,934,411 $19,708,798 Long-term debt, net $2,450,873 $3,906,781 Other noncurrent liabilities $938,578 $1,456,053 Total liabilities $16,323,862 $25,071,632 Net assets Unrestricted $400,000 $3,712,900 Temporarily restricted $600,000 $900,000 Permanently restricted $5,734,526 $376,609 Total net assets $6,734,526 $4,989,509 Total liabilities and net assets $23,058,388 $30,061,141 The Assignment As a board member, calculate Hall Healthcare Systems current ratio and acid ratio to determine whether you support your CEOs decision to acquire Hall. Support your position and show your calculations. Current ratio = Current assets / Current liabilities Acid ratio = Total current assets less inventory / Total current liabilities Scenario 3: Montgomery Home and Community-Based Services Montgomery Home and Community-Based Services is considering a major expansion that will enable it to attract a different clientele to its organization. Currently, they serve only 34% of the frail elderly seniors and persons with disabilities in a three county area, with the majority of the residents working for the federal and state government. Montgomery relies 100% on local government funding to provide in home support and homemaker service to their clients. Their new chief executive officer (CEO) would like the organization to expand its revenue stream by investing in a senior multipurpose center serving healthy seniors by offering them arts and crafts and health and wellness programs. The center will also contain an Internet caf offering nutritious breakfast and lunch options. The CEO has commissioned a needs assessment, and the studys results reveal that there are only 15 retired seniors who would be willing to pay the monthly fees to access the center. Further results reveal that there are approximately 120 seniors who will be retiring from the government in three years who would be willing to become members at the center. The proposed costs to operate this new facility are as follows: Monthly Fixed Costs Utilities: $590 Health/Wellness Staff: $2,500 Arts/Crafts Staff: $2,000 Supplies: $800 Fitness Equipment Maintenance Contract: $200 Variable Costs Monthly Membership Fee: $105 Monthly Lunch Cost: $25 Monthly Breakfast Cost: $15 Based on the information above, the initial investment to establish the center is $317,880. The organization anticipates that it will generate $25,700 of revenues in the first year, $40,000 in the second year, $78,000 in the third year, $225,000 in the fourth year, and $310,000 in the fifth year. The Assignment The CEO has presented her proposal and financial information to the board of directors, and they have advised her that they are in full support of her strategy if the program is a benefit to the community and if the organization can recoup its investment in three years. Based on the information presented in the scenario, calculate the two analyses below and explain their implications. 1. Perform the break-even analysis to determine how many seniors would need to have full monthly membership and pay for breakfast and lunch for Montgomery Home and Community-Based Services to cover its monthly expenses. Break-even volume = Total fixed costs / (Average charge per client Average variable cost per client) 2. Calculate the payback period to determine how long it will take for the organization to recover its initial investment of establishing the senior multipurpose center. Payback period = A + (B/C)