Finance Assignment
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chapter-14-problems.xls-workshop-5.xlsProblem 1
| UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | ||
| Chapter 14 -- Financial Forecasting | ||
| PROBLEM 1 | ||
| Florida Home Health is a small home care agency owned by a group practice of nurses and physical | ||
| therapists in Tampa, Florida. During the past few years, the company reported the following revenues: | ||
| Year | Revenues (thousands) | |
| 1 | $2,058 | |
| 2 | $2,534 | |
| 3 | $2,472 | |
| 4 | $2,850 | |
| 5 | $3,000 | |
| 6 | ? | |
| Predict Florida Home Health's Year 6 revenue. | ||
| ANSWER |
Problem 2
| UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | ||||||
| Chapter 14 -- Financial Forecasting | ||||||
| PROBLEM 2 | ||||||
| Gainesville Surgicenter Inc. is a large, ambulatory surgery center owned by a group practice of surgeons | ||||||
| in Gainesville, Florida. The 2010 financial statements for the firm are shown below: | ||||||
| Balance Sheet as of December 31, 2010 (Thousands of dollars) | ||||||
| Cash | $1,800 | Accounts payable | $7,200 | |||
| Receivables | $10,800 | Notes payable | $3,472 | |||
| Inventories | $12,600 | Accruals | $2,520 | |||
| Total current assets | $25,200 | Total current liabilities | $13,192 | |||
| Net fixed assets | $21,600 | Mortgage bonds | $5,000 | |||
| Common stock | $2,000 | |||||
| Retained earnings | $26,608 | |||||
| Total assets | $46,800 | Total liabilities & equity | $46,800 | |||
| Income Statement for 2010 (Thousands of dollars) | ||||||
| Revenues | $36,000 | |||||
| Operating costs | $30,783 | |||||
| Earnings before interest and taxes | $5,217 | |||||
| Interest | $1,017 | |||||
| Earnings before taxes | $4,200 | |||||
| Taxes (40%) | $1,680 | |||||
| Net income | $2,520 | |||||
| Dividends (60%) | $1,512 | |||||
| Addition to retained earnings | $1,008 | |||||
| a. Assume that the company was operating at full capacity in 2010 with regard to all items except fixed | ||||||
| assets (operating rooms and support space); fixed assets in 2010 were utilized to only 75 percent of | ||||||
| capacity. By what percentage could 2011 revenues increase over 2010 revenues without the need for an | ||||||
| increase in fixed assets? | ||||||
| b. Now suppose 2011 revenues increase by 25 percent over 2010 revenues. Use the constant growth | ||||||
| method to develop a pro forma balance sheet and income statement as in Table 14.3. Assume that | ||||||
| Gainesville cannot sell any fixed assets and that any financing required is borrowed as notes payable at | ||||||
| an interest rate of 12 percent. | ||||||
| ANSWER |
Problem 3
| UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | ||
| Chapter 14 -- Financial Forecasting | ||
| PROBLEM 3 | ||
| Pharma Drug Store is a pharmacy in Portland, Maine, owned by Jane Smith, a local pharmacist. Pharma | ||
| business has been good, but Ms. Smith finds that she frequently runs out of cash. To date, she has dealt with | ||
| this cash shortfall by delaying payment to the drug suppliers, which is starting to cause problems. Instead | ||
| of delaying payment, Ms. Smith has decided that she should borrow from the bank to have cash ready when | ||
| needed. To have an estimate of how much she must borrow over the next three months, she must | ||
| prepare a cash budget. | ||
| All of Pharma's sales are made on a cash basis, but drug purchases must be paid for during the following | ||
| month. Ms. Smith pays herself a salary of $4,800 per month, the rent on her store is $2,000 per month, | ||
| and a $12,000 payment for taxes is due in December. On December 1, there is $400 cash on hand, but | ||
| Ms. Smith wants to maintain a target cash balance of $6,000. Pharma's estimated sales are $160,000 for | ||
| December, $40,000 for January, and $60,000 for February. Estimated drug purchases are $140,000 for | ||
| November, $40,000 for December, $40,000 for January, and $40,000 for February. | ||
| Prepare a cash budget for December, January, and February. | ||
| ANSWER |
