Assignment: Cost, Payment and Profit Analysis

IN-TEXT Citations, 3 References minimum. For questions with formulas please explain, state the formula, and show steps of formula, then a conclusion. Thank you.

Submit written responses to these questions.

1. Discuss the four major concerns of using the cost-to charge ration method.

2. What is the relationship between the concepts cost allocation basis as used in the step-down method and cost driver as used in ABC?

3. What is the difference between a cost object's direct cost and its fully allocated cost? Give an example.

4. What are the advantages and disadvantages of ABC relative to the step-down method of cost allocation?

5. Name the units of service on which cost-based payers may pay providers.

6. How do copayments and deductibles reduce risk?

7. Why do providers desire "steerage"?

8. Who bears the risk under a flat is system? Why?

9. How do HMOs uses determine their premiums?

10. If an HMO covered 150,000 lives, expected 25 myocardial infarctions (MI) to occur each year within the covered lives, would expect a length of stay of 4.5 days for each MI, and had to pay an average of $950 per day for each day the MI patient was in the hospital, what would the PMPM cost of the HMO be? What would have to be charged to the patient/employer if the HMO had administrative costs equaling 10 percent of its costs and it wanted a profit margin of 7 percent?

IN-TEXT Citations, 3 References minimum. Minimum (Not including cover page and references) 3,000 words. APA Format

Project-Value Analysis Using EVA

Overview

Each student must submit a Final Project report for grading by your professor. This Final Project will count for 20% of your grade in this course.

Introduction

Investment guru Warren Buffet is one of the largest investors in The Coca Cola Company. He originally became interested in the soft drink company because he believed other investors were undervaluing the company. Mr. Buffet uses EVA as one of the primary tools to value companies. He believes that the true value of a company is determined by the ability of a company to earn cash returns in excess of the company's cost of capital.

When Mr. Buffet analyzed Coke's bottling companies he found a business that required very significant amounts of capital, the cost of which was barely being covered by the cash flows being generated by bottling operations - low EVA. The remaining elements of Coke's business involved brand management, product development, licensing, and several related areas. These operations required modest amounts of capital, but produced huge amounts of free cash flow - high EVA. This EVA analysis suggested that Coke would likely demand a higher valuation without the bottling operations. Mr. Buffet convinced Coke to form a separate company, Coca Cola Enterprises, to force investors to make two separate evaluations. The result was dramatic. The market valued these two separate companies much differently than when they were combined. The Coca Cola Company without the bottling organization was worth more than with the bottling organization.

The objective of your Final Project is to identify a company that might be worth much more if it were broken into pieces and valued (using EVA) separately. The rationale for this difference can perhaps be explained by the difficult investors have valuing companies with multiple business units and/or accepting the insights of EVA analysis.

In addition to identifying a candidate for a breakup, your Final Project Report should include an EVA analysis of the combined company as well as the individual elements you recommend would be valued higher if they were separate. Also be sure to describe strategic advantages that could be gained from a breakup that are not rationalized only by EVA analysis. So, the rationale for your company selection should be based both strategic advantage and financial analysis.

Deliverables

The final report for your Final Project should not be less than 3,000 words and formatted in MS Word using a 12 pt. Times New Roman font. Your report should be idea-driven, but researched based, so be sure to include research citations in your final report as appropriate. In addition to a brief executive summary, your Final Report can have any number and type of sections.