Quetion1. Fargo Memorial Hospital has yearly net patient service revenues of $14,400,000. It has two major third-party payers, plus some of its patient is self-payers. The hospitals patient accounts manager estimations that 10% of the hospitals paying patients (its self payers) pay on Day 30, 60, percent pay on Day 60 (Payer A), and 30% pay on Day 90 (payer B). (Five percent of total billings end up as bad debt losses, however that is not relevant for this problem).
A. What is Fargo s average collection period? (Suppose 360 days per year during this problem).
B. What is the firm’s current receivables balance?
C. What would be the firms new receivables balance if a newly proposed electronic claims system resulted in collecting from third-party payers in 45 and 75 days, instead of in 60 and 90 days?
D. Suppose the firm’s annual cost of carrying receivables was 10%. When the element claims system costs $30,000 a year to lease and operate, must it be adopted (Suppose that the entire receivables balance has to be financed.
problem2. A proposed expansion project is expected to increase sales of JL Ticker's Store by $35,000 and increase cash expenses by $21,000. The project will cost $24,000 and be depreciated using straight-line depreciation to a zero book value over the 4-year life of the project. The store has a marginal tax rate of 30 percent. What is the operating cash flow of the project using the tax shield approach?
problem3. Banker Company is looking to forecast the financing it will need for the next year's operations. To do so, Banker must look at its financial statements to determine whether or not it will be able to sustain future sales. Below are some important facts and metrics extracted from the firm's financial statements:
Net Income: $5,000,000
Profit Margin: 25%
Roe: 10%
40% of the firm's assets can be liquidated within a calendar year
Of these assets, only 25% or comprised of inventory
Quick Ratio: 1.7
Debt-to-Equity Ratio: 0.75
85% of the firm's earnings are reinvested into the firm.
If the company expects sales to rise by 30%, then what is the extra financing required for Banker in the coming year?