The Wall Street Journal once reported that hospitals plan to boost the amount of money spent on new property, plant, and equipment to meet increased demand from the aging demographics of the United States. The article stated that the increased capital spending "could squeeze already thin profits."

REQUIRED:

a. Discuss how hospital profits can be affected by increases in capital spending.

b. Discuss which financial statements would show the effects of increased capital spending.

c. How could you justify an increase in capital spending in terms of its potential effect on return on shareholders' equity?