what is your corporate cost of capital , Cost Accounting

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You are the CFO of a Hospital. Suppose that your projected average daily reimbursement is $100, 000 and your average collection day is 40 days. What is your hospital's annual cost of carrying receivables at 4% interest for the first 7 months of the year and 5.5% for the other 5 months?

A) 160,000

B) 175,000

C) 185,000

D) 195,000

E) 145,000

F) 201,000

G) 177,000

H) 155,500

I) None of the listed

2. Suppose your clinic's financial projections for the first year of operations are as follows:

Number of visits              $10,000

Wages and benefits        $220,000

Rent                              $5,000

Depreciation                   $30,000

Utilities                          $2,500

Medical Supplies             $50,000

Administrative supplies    $10,000

 Assume that all costs are fixed except supplies costs, which are variable. What is your clinic's variable cost rate?

A) 3

B) 4

C) 5

D) 6

E) 7

F) 8

G) 9

H) 10

3. You decide to go into consulting.  One of your clients, a CFO of a non-for-profit hospital asks your opinion about the acquisition of a local physician practice for $2,000,000. After the acquisition, the CFO expects to be reimbursed under APC and  to pay out physicians (Salary expense) under RBRVS. The CFO also expects to spend on average $250,000/year in other expenses. Over the next 5 years, RBRVS and APC weights are expected to remain the same.  Also the conversion factor for RBRVS is expected to remain at $34.0376 and the APC conversion factor is expected to remain $70.016. The number of visits will also likely behave the same. Here are the statistics of the physician practice from 2008-20012:

CPT/
HCPCS

Number of visits 2008

Number of visits 2009

Number of visits 2010

Number of visits 2011

Number of visits 2012

Q0035

199

87

77

213

243

G0416

58

191

206

69

151

78483

199

66

223

250

120

78491

238

181

91

169

52

36475

125

205

155

88

210

36515

245

174

89

172

51

38542

190

96

141

140

176

CPT/
HCPCS

Physi-
cian
Work
RVUs

Non-
Facility
PE
RVUs


Facility
PE
RVUs

Mal-
Practice
RVUs

Global

APC Relative Weight

Q0035

0.17

0.36

NA

0.01

XXX

2.5453

G0416

3.09

13.96

NA

0.01

XXX

2.3474

78483

1.47

7.06

NA

0.03

XXX

4.2502

78491

1.50

0.65

0.65

0.10

XXX

14.8102

36475

6.72

46.52

2.74

1.41

000

44.1803

36515

1.74

55.40

0.78

0.24

000

32.5877

38542

7.95

NA

6.03

1.33

090

51.3327

1.  Show an expected  P&L statement (on average).

2.  What is the operating margin?

3.  What is the expected profit per visit adjusted to wage index and case mix index?

4. Should the CFO acquire the physician practice given the opportunity cost rate of 10%? Justify your answer from NPV, IRR, and other relevant financial measures.

5.   What other considerations should the CFO consider before making the final decision?

You are contemplating the possibility of starting a new business. After weighting different options, you decide to start a company that releases patient medical records (health information).

Current analysis

You will need about $150,000 in start-up costs but you can only borrow half of that amount from your family's home equity (at 13% interest). You will have to borrow the rest of the needed capital from a local community bank at 10%. Suppose you decide to take out a 5 year loan. Here is the amortization schedule:

Date

Interest

Principal

Balance

Year 1

$13,904.46

$24,340.22

$125,659.78

Year 2

$11,355.72

$26,888.96

$98,770.83

Year 3

$8,540.10

$29,704.58

$69,066.24

Year 4

$5,429.64

$32,815.04

$36,251.20

Year 5

$1,993.48

$36,251.20

$0.00

1. You are the CFO of a Hospital. Suppose that your projected average daily reimbursement is $100, 000 and your average collection day is 40 days. What is your hospital's annual cost of carrying receivables at 4% interest for the first 7 months of the year and 5.5% for the other 5 months?

A) 160,000

B) 175,000

C) 185,000

D) 195,000

E) 145,000

F) 201,000

G) 177,000

H) 155,500

I) None of the listed

2. Suppose your clinic's financial projections for the first year of operations are as follows:

Number of visits               $10,000

Wages and benefits        $220,000

Rent                              $5,000

Depreciation                   $30,000

Utilities                          $2,500

Medical Supplies              $50,000

Administrative supplies    $10,000

 Assume that all costs are fixed except supplies costs, which are variable. What is your clinic's variable cost rate?

A) 3

B) 4

C) 5

D) 6

E) 7

F) 8

G) 9

H) 10

3. You decide to go into consulting.  One of your clients, a CFO of a non-for-profit hospital asks your opinion about the acquisition of a local physician practice for $2,000,000. After the acquisition, the CFO expects to be reimbursed under APC and  to pay out physicians (Salary expense) under RBRVS. The CFO also expects to spend on average $250,000/year in other expenses. Over the next 5 years, RBRVS and APC weights are expected to remain the same.  Also the conversion factor for RBRVS is expected to remain at $34.0376 and the APC conversion factor is expected to remain $70.016. The number of visits will also likely behave the same. Here are the statistics of the physician practice from 2008-20012:

CPT/

HCPCS   Number of visits 2008    Number of visits 2009    Number of visits 2010    Number of visits 2011    Number of visits 2012

Q0035   199         87           77           213         243

G0416   58           191         206         69           151

78483    199         66           223         250         120

78491    238         181         91           169         52

36475    125         205         155         88           210

36515    245         174         89           172         51

38542    190         96           141         140         176

 

RVUs     Global   APC Relative Weight

Q0035   0.17        0.36        NA          0.01        XXX        2.5453

G0416   3.09        13.96     NA          0.01        XXX        2.3474

78483    1.47        7.06        NA          0.03        XXX        4.2502

78491    1.50        0.65        0.65        0.10        XXX        14.8102

36475    6.72        46.52     2.74        1.41        000         44.1803

36515    1.74        55.40     0.78        0.24        000         32.5877

38542    7.95        NA          6.03        1.33        090         51.3327

1.  Show an expected  P&L statement (on average).

2.  What is the operating margin?

3.  What is the expected profit per visit adjusted to wage index and case mix index?

4. Should the CFO acquire the physician practice given the opportunity cost rate of 10%? Justify your answer from NPV, IRR, and other relevant financial measures.

5.   What other considerations should the CFO consider before making the final decision?

You are contemplating the possibility of starting a new business. After weighting different options, you decide to start a company that releases patient medical records (health information).

Current analysis

You will need about $150,000 in start-up costs but you can only borrow half of that amount from your family's home equity (at 13% interest). You will have to borrow the rest of the needed capital from a local community bank at 10%. Suppose you decide to take out a 5 year loan. Here is the amortization schedule:

Date      Interest                Principal               Balance

Year 1    $13,904.46           $24,340.22           $125,659.78

Year 2    $11,355.72           $26,888.96           $98,770.83

Year 3    $8,540.10             $29,704.58           $69,066.24

Year 4    $5,429.64             $32,815.04           $36,251.20

Year 5    $1,993.48             $36,251.20           $0.00

 Your estimated revenue per page of a medical record is 75 cents. The estimated processing cost per page is 20 cents

Marketing is expected to cost you $2,000 per year. So far, you only have two clients (two local hospitals) with combined annual discharges of 30,000. From your marketing efforts and word- of-mouth, you expect to gain 5,000 new discharges  each year over the next 5 years.

On average, you expect to release10 pages per discharge. You plan to pay yourself $85, 000 per year. You plan to hire a part-time clerk for every 15,000 discharges at $20,000 per year. You expect to pay $10,000 per year in equipment lease. For the next 5 years, your revenue and expenses  are expected to  increase by 3%, except the marketing costs (in other words, marketing will remain at $2,000 per year) Your tax rate is expected to stay at  35%

 Questions

1. What is your corporate cost of capital (CCC) on the day you start your business?

2. Construct a projected P&L statement in each year for next 5 years.

3. Construct a simple balance sheet statement in each year for next 5 years. Remember that Assets = Equity + Liabilities

4. Discuss about the Dupont equation of your company.

5.  What other financial measures can investors use to evaluate the profitability of your company?


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