Scenario: You represent the management team of Cactus Spine Medical Center in rural southeastern California. The 105 bed hospital has been operating in the same building since opening in 1957. In 2005, it undertook a $20,000,000 renovation funded with a bond issue with a level annual payment over twenty years at 7.25% interest. The building is beginning to show its age after nearly fifteen years and is facing about $9,000,000 in renovations including a new roof, generator, chillers, and boilers - along with some structural upgrades noted after a recent minor earthquake. The latest financial statements for the hospital as of its fiscal year end on December 31, 2019 are included as an attachment.

The hospital pondered refinancing its debt a year ago and received a tentative Baa rating from Moody's. Assume that rating would still be applicable today. Research the current interest rates for a Moody's Baa rated organization and evaluate the following decision.

You have been warned by regulatory inspectors that if you do not have a plan in place to remedy the building issues noted here within the next year, they will propose revocation of the hospital license. The Joint Commission made similar comments in its re-accreditation visit this past year. So you are spending that $9 million. The question is, what to do about the other $20 million? Maybe you just want to "punt" and sell out the Primary Health Corporation since they have expressed interest in acquiring your facility at a price of about $3 million plus defaseance of debt. (HINT: don't do that)

What would you recommend to the governing board about how to get the required renovations financed - and why?

The financial statement to be used is attached (see picture). Thanks! If you can provide detailed info, I would appreciate it. Pretty lost.

Back Cactus Spine Financials2019.pdf 4 Q Income Statement Net Patient Revenues 39,036,750 Balance Sheet Cash Marketable Securities A/R Inventory Other Current Assets Current Assets $3,968,513 1,794,703 6,689,980 921,969 144,563 13,519,728 Property Plant & Equipment 65,704,853 less: Accumulated Depreciation 41,792,896 Net PP&E 23,911,957 Long-Term Investments 8,746,347 Total Non Current Assets 32,658,304 Salaries & Wages Benefits Supplies Purchased Services Depreciation Interest Other Operating Expenses Total Operating Expenses 20,199,110 5,582,255 8,197,718 216,000 3,752,962 1,504,332 94,200 39,546,577 Operating Income -509,827 Total Assets 46,178,032 Investment Income Contribution Income 391,748 145,605 Accounts Payable Salaries Payable Other Current Liabilities Current Liabilities 919,286 699,969 2,013,676 3,632,931 Net Income 27,526 Long Term Debt 21,734,453 Total Liabilities 25,367,384 Net Assets 20,810,648 Total Liabilities and Net Assets 46,178,032