Healthcare Assignment
Barbara79
Chapter01withProblem05.xlsxProblem 1
| 9/1/14 | UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | |
| Chapter 1 -- Introduction to Healthcare Financial Management | ||
| PROBLEM 1 | ||
| Corporate bonds issued by Johnson Healthcare currently yield 8 percent. | ||
| a. If an investor is in the 34 percent tax bracket, what is the bond's after-tax yield? | ||
| b. Municipal bonds of equal risk currently yield 6 percent. At what tax rate would an investor be | ||
| indifferent between these two bonds? | ||
| c. Which bond should an investor in the 34 percent tax bracket invest in? | ||
| ANSWER |
Problem 2
| UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | ||
| Chapter 1 -- Introduction to Healthcare Financial Management | ||
| PROBLEM 2 | ||
| The Talley Healthcare System had a taxable income of $365,000 from operations after all operating costs | ||
| but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, | ||
| and (4) income taxes. | ||
| a. What are the firm's income tax liability and its after-tax income? | ||
| b. What are the firm's marginal and average tax rates on taxable income? | ||
| ANSWER |
Problem 3
| UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | ||
| Chapter 1 -- Introduction to Healthcare Financial Management | ||
| PROBLEM 3 | ||
| New Hope Managed Care Inc. is a for-profit managed care company that serves the southwest United | ||
| States. Last year, it reported $1,200,000 in income from operations, $250,000 in interest income from | ||
| bonds it bought in the previous year, and $60,000 in dividend income from shares in a large drug company. | ||
| New Hope also has $200,000 in surplus funds that it is considering investing in bonds that pay interest of | ||
| $10,000 per year or stock that pays dividends of $9,000 per year. | ||
| a. What is New Hope's tax liability? | ||
| b. What is New Hope's marginal tax rate? Average tax rate? | ||
| c. Should New Hope invest its surplus funds in bonds or stock? | ||
| ANSWER |
Problem 4
| UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | ||
| Chapter 1 -- Introduction to Healthcare Financial Management | ||
| PROBLEM 4 | ||
| The Klaven Nursing Home has taxable income of $750,000. The home's depreciation expense is | ||
| $200,000. Klaven is 100 percent equity financed, and it faces a 40 percent tax rate. | ||
| a. What is the home's after-tax income? | ||
| b. What is its net cash flow? | ||
| ANSWER |
Problem 5
| UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | ||
| Chapter 1 -- Introduction to Healthcare Financial Management | ||
| PROBLEM 5 | ||
| Johnson Family Care Inc. is a large ambulatory care center that provides comprehensive 24-hour | ||
| primary and specialty care to a large suburban population in Pennsylvania. The center recently purchased | ||
| new clinical laboratory equipment for $1.1 million and spent $22,000 to renovate a center room to | ||
| accommodate the new equipment. The useful life of the equipment is estimated to be ten years, after which | ||
| it can be sold for $75,000. Johnson uses a straight-line method to calculate book depreciation and pays tax at | ||
| a rate of 40 percent. The equipment falls into the MACRS seven-year class. | ||
| a. What annual depreciation expense will be reported on the income statement for the center? | ||
| b. What annual depreciation expense will be reported for tax purposes? | ||
| c. Suppose Johnson sells the laboratory equipment at the end of Year 4 for $400,000. What impact would | ||
| this have on the taxes paid by the center? | ||
| ANSWER |
