Description

Healthcare Financial Management

Show your analyses in tabular format where appropriate.

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1-    You have been hired as a senior Business Analyst at Broward General Hospital. The Chief Financial Officer whom you report to assigned this a project which she has started. She wants your recommendations, furthermore, she wants to see the following: (20 points)

1a- Payback period

1b- Net Present Value (NPV)

1c- Profitability Index (PI)

1d- Your recommendations (Accept or Reject) and Why?

2-    The Board of Broward General Hospital made a decision to raise $50M by issuing bonds for the construction of a new critical care tower. Some of the middle management staff are concern, they do not understand how the bond market works. As a Senior Business Analyst, you are asked to present a fifteen minutes Power Points presentation to the group at the next Department Leader’s meeting about the fundamentals of US bond market. Explain how each of the following affects a bond financial value (20points)

2a-RRF (Real Risk-Free Rate)

2b-IP (Inflation Premium)

2c-DRP (Default Risk Premium)

2d-LP (Liquidity Premium)

2e-PRP (Price Risk Premium)

2f-CRP (Call Risk Premium)

2g-The relationship between interest rate and Bond price

2h-Par Value of a Bond

2e-What happen to a bond price when the bond is sold at a discount or at a premium?

2j-How and in what way the ranking of the hospital credit could affect its access to capital.

2k-Maturity date

2l-Coupon rate

2m-New issues versus outstanding bonds

3-    Assume Broward General Hospital (BGH) issued bonds that have a ten-year maturity, a 12% coupon rate with annual payment, and $1,000 par value.

3a- Suppose that two years after the bonds were issues, the required interest rate fell to 7%. What would be the bonds’ value? (5points)

3b- Suppose that two years after the bonds were issues, the required interest rate rose to 13%. What would be the bonds’ value? (5points)

4-    Assume Broward General Hospital is an investor-owned organization. Assuming that the coupon rate set for its debt is 11% and its tax rate is as follow (4a-4b-4c) below. What is BGH effective cost of debt after tax? (10points)

4a- 0.0%

4b- 20%

4c- 40%

5-    As Senior Business Analyst you continuously prove your financial analytical skills and knowledge. The CEO promote you to Interim Chief Financial Officer and ask you to analyze two proposed capital investment projects. Each project requires a net investment outlay of $ $750,000, and the cost of capital for each project is 10% the projects’ expected net cash flows are as follows: (20points)

8a- Calculate each project’s net present value (NPV)

8b- Which project(projects) is financially acceptable and why?

6-    The hospital Executive would like to invest $4M to procure the latest piece of equipment in medical technology. Leadership believes this equipment will revolutionize and enhance patient care. The analyst you replaced have used straight line depreciation method. You believe the hospital should depreciate the asset faster. Explain your rationale. The CEO believes straight-line depreciation method is a good way to increase depreciation expenses and reduce tax liability in the first three years. You disagree and decide to use MACRS – Depreciation method to prove your point. Compute total depreciation for the first 3 year under SL & MACRS. (20points)