Budget Proposal instructions

Instructions: Complete each part of the following Case Study. You will need to use Microsoft Word and Excel. Tables referenced in the case study are located in the Excel file labeled “Case Study Tables”. Label your written responses by part number. For example, your memo for Part 1 must be labeled Part 1 as a level 1 heading, then proceed with your memo, and then a new level 1 heading Part 2, followed by answers to those questions. A title page must be included in your submission.

Financial Management

Part 1  Financial Statement Analysis

The loan committee of a major bank needs a financial assessment. Analyze the financial statement for (your instructor will provide the company name). Download the financial statements into Microsoft Excel and then use horizontal statement analysis as well as financial ratios to assess the organization’s liquidity, profitability, financial efficiency (turnover), and capital/debt structure. Based on your assessment, present a 2–4-page memo that describes the financial strengths and weaknesses of the organization as of their most recent year-end. Your memo must indicate the maximum loan amount that should be authorized.

Part 2  Budget Analysis

 

Table 1 includes PCS’s proposed budget for 2018. Using this as a basis, develop a revenue and expenses budget for each PCS center. Note that professional reading fees and laboratory expenses are variable costs that need to be allocated based on the type of visit. Generally, an occupational health visit (Categories 8 and 9 on Tables 2 and 3) including all physicals has reading and laboratory costs 1.4 times what a general medical visit incurs (Category 1, 2, or 3). For each line item in the budget, indicate whether the item is a fixed or variable expense and the basis of allocation or assignment for the budget for each center. Each center is expected to generate approximately the same profit margin. Given your analysis, will it? Should management change its expectations regarding average revenue per visit by center?

Part 3  Monthly Cash Budget

 

Table 4 includes the 2018 budget for Jasper Gardens Nursing Home. For your monthly cash budget, assume that one-twelfth of cash expenses and revenues are incurred per month. Use the following aging analysis to estimate cash inflows. What are the management implications of this analysis?

Table III.4 Aging Analysis

Percent of Bills Paid in Cash Within            days of Billing

Days	30 or less	31–60	61–90	91–120	121–150
Medicare	5	20	30	40	5
Medicaid	0	25	25	25	25
Commercial
Insurance	25	25	25	10	15
Private Insurance	30	30	30	10	0
Self-Pay	40	30	20	0	10
VA	25	15	10	45	5

Assume that Accounts Receivable – Net as of December 31, 2017, are the same percentage as anticipated revenue to be earned during 2018.

Part 4  Webster Hospital—Long-Term Debt Financial Analysis

 

OHA has indicated that we should maintain a debt to asset ratio no higher than 40 percent. Given this, how much additional long-term debt could have been added in 2017? We would use this additional debt to finance new construction, renovations, and the acquisition of technology. To finance this additional long-term debt we would use bonds. As such, we need to assess our credit worthiness. The following are the select median values for specific financial ratios for hospitals that received “below investment grade (BBB)” and “high investment grade (AA)” bond ratings.

Assess and report Webster’s position with recommendations. Are Webster’s bonds more likely to be rated as AA or BBB? Why?

Table III.5

Comparison of Financial Ratios by Bond Rating

 

Bond Grade   Days Cash on Hand	AA   194	BBB   53.6
Days in Accounts Receivables	58.0	47.7
Days in Current Liabilities	62.3	64.7
Cash to Debt (%)	153.9	37.9
Total Margin-%	4.1	(0.3)
Salaries and benefit costs as

 

 

 

 

% of Total Revenue	49.9	56.3
Average Age of Plant (years)	9.5	13.4
Capital Expenditures as % of Depreciation Expense	169.9	76.2

 

Our annual interest cost of long-term borrowing would be 3.0 percent if our bonds were rated “high grade” and 7.5 percent if rated “below investment grade.” Assume that ten- year bonds are used to finance this additional debt. What would be the annual principal and interest payment for this amount? Can Webster Hospital afford this increased annual expense? Note that for every $100,000 borrowed over ten years, our monthly payments would be $989 at 3.5 percent or $1,136 at 6.5 percent.

Part 5  Surgery for Middleboro

 

As you are aware, Medical Associates has achieved its targeted utilization and financial projections for ambulatory surgery in Jasper. It is now time to consider a similar service at our offices in Middleboro. The physical facilities needed for ambulatory surgery will cost $450,000. Our cost of capital is 4 percent and the hurdle rate is 6 percent. The anticipated salvage value of these new fixed assets will be $150,000 after five years. To do this we will need to recruit two new general surgeons for our Jasper office, thereby freeing our Middleboro general surgeons to work in this new ambulatory surgical facility. We anticipate opening no earlier than January 2, 2016

Based on operational estimates, we anticipate that this project’s annual operational revenue will exceed its operational expenses (R-E) for each of the first five years in accordance with the following schedule. Note that the operational expenses include all direct costs including salaries and benefits.

Table III.6

Fiscal Implications of New Ambulatory Surgery Service

 

R-E ($)               Median Cases per Day (M–F)

Year 01	20,000	9.0
Year 02	40,000	10.0
Year 03	60,000	12.5
Year 04	100,000	12.5
Year 05	140,000	14.0

We estimate that this unit, employing the standard RVU system used in hospitals, will generate 1.1 surgical procedures per case. Assess the financial implication. Should we do this? Why?

Part 6 Hospital Discounts

 

A coalition of key area employers has approached MCH or WH demanding an additional 10 percent discount per patient day for all of their employees admitted to the hospital. If not offered, they will change their health insurance to favor the one hospital in Middleboro with the lowest prices. What would be the implications of such a change? Structure the analysis that would be undertaken to respond to this demand.

Part 7 Medicaid Expansion

 

The state legislature and governor have just rejected additional Federal funding for Medicaid expansion. Assess the financial impact of this decision on MCH or WH.

Part 8 New Primary Care Practices in Jasper

 

Determine the costs to MCH of establishing two new primary care practices in Jasper. The analysis should include estimates of all costs (recruitment, compensation arrangements, facility, staffing, information technology, etc.) and assess the advantages and disadvantages of leasing or purchasing building space.

Submit this assignment by 11:59 p.m. (ET) on Sunday of Module/Week 7.