Problem #1 15 Points
Assume that LIU Healthcare has the following cost structure:
Fixed Costs $625,000
Variable Cost per procedure $42.50
Average revenue (charge) per procedure $130
Assume the group expects to perform 3,500 procedures during the coming year 3,500
a) Construct LIU Healthcare’s base case projected P&L statement
b) What is LIU Healthcare’s contribution margin?
c) What is the breakeven point using CM?
d) How many procedures must the practice do to make a $55,000 profit?
e) Now assume that the practice contracts with one HMO, and the plan proposes a 30% discount from charges on 15% of its patients.
Should the hospital accept the discount? YOU MUST SHOW PROFIT & LOSS STATESMENTS AND CONTRIBUTION MARGINS FOR BOTH SCENARIOS
Fundamentals of Health Care Finance Problem #2
Problem #2 10 Points
Please fill in the highlighted cells (YOU MUST USE EXCEL FORMULAS FOR CREDIT)
12/31/16 Clinic A Clinic B Clinic C Clinic D
Assets $ 12,500.00 $ 42,000.00 $ 85,325.00
Liabilities $ 5,000.00 $ 12,500.00
Equity $ 22,000.00 $ 42,500.00 $ 65,000.00
12/31/17 Clinic A Clinic B Clinic C Clinic D
Assets $ 22,500.00 $ 125,000.00
Liabilities $ 950.00 $ 4,200.00 $ 300.00
Equity $ 12,500.00 $ 65,325.00 $ 88,500.00
During 2017 Clinic A Clinic B Clinic C Clinic D
Total revenues $ 13,500.00 $ 32,000.00
Total expenses $ 6,200.00 $ 30,000.00
Problem #3 10 Points
Given the following financial data on Parkside Memorial Hospital, please perform a Dupont Analysis to determine the company’s ROE.
Pleae also report your findings in a short paragraph to a group of community stakeholders who have never taken MPA 613….
Net Income $42,500
Total Revenue $185,000
Total Assets $8,500,000
Total Equity $325,000
Problem #3 (10 Points)
Consider MPA Medical Center’s Financial Statements below
1) Please complete MPA Medical Center’s Statement of Income and Retained Earnings, and Balance Sheet
2) What is the Center’s approximate cash flow? $ 174,048.00 Dupont Analysis
3) What is the Center’s net working capital? $ 163,842.00
4) What is the Center’s profit margin? 0.86
5) What is MPA Medical Center’s debt ratio? 1.77%
6) What is MPA Medical Center’s Return on Assets? 2.31%
MPA Medical Center
Statement of Income and Retained Earnings
Year Ended December 31, 2016
Net patient service revenue $ 3,163,258.00
Other revenue $ 123,750.00
Total revenue $ 3,287,008.00
Salaries and benefits $ 1,515,438.00
Medical supplies $ 966,781.00 Approximate Cash Flow
Insurance $ 296,357.00 $ 191,652.00
Provision for bad debt $ 110,000.00
Depreciation $ 85,000.00 Net working capital
Interest $ 206,780.00 $ 163,842.00
Total expenses $ 3,180,356.00
Operating income $ 106,652.00 Debt Ratio
Provision for income taxes $ 31,167.00 0.86
Net income $ 75,485.00
Retained earnings, beginning of year $ 199,961.00 2.30%
Retained earnings, end of year $ 275,446.00 *
Return on Assets
MPA Medical Center 3.02%
Balance Sheet, December 31, 2016
Cash $ 105,737.00
Marketable securities $ 200,000.00
Net patient accounts receivable $ 215,600.00
Supplies $ 87,655.00
Total current assets $ 608,992.00
Property and equipment $ 2,250,000.00
Less: accumulated depreciation $ 356,000.00
Net property and equipment $ 1,894,000.00
Total assets $ 2,502,992.00
Liabilities and Shareholders’ Equity
Accounts payable $ 72,250.00
Accrued expenses $ 192,900.00
Notes payable $ 100,000.00
Current portion of long term debt $ 80,000.00
Total current liabilities $ 445,150.00
Long term debt $ 1,700,000.00
Total Liabilities $ 2,145,150.00
Common stock, $10 par value $ 100,000.00
Retained earnings $ 275,446.00 *
Total shareholders’ equity $ 375,446.00
Total liabilities and shareholders’
equity $ 2,520,596.00
Problem #4 Fundamentals of Health Care Finance
Problem #4 10 Points
Please complete the budgeting analysis by filling out the chart below – you must use excel for credit
Fringe benefits, (both budgeted and actual) are 45.2% of Salaries
Equipment is budgeted at 3% less than supplies but actual dollars spent were 4.2% less than budgeted
What is your observation of each line item?
Adopted vs Actual Budget (Fiscal Year Ended 12/31/2019)
LIU HEALTHCARE WALK-IN CLINIC
EXPENDITURES BY TYPE
End of Year (December 2019 Actual/Spent) Adopted Budget in beginning of (January 2019) Year Net Change (Variance) Percent Change Budgeted vs. Actual Percent of Total Expenditures Spent Analysis/Observation
Salaries $1,855,250 $1,655,250
Total Personnel Expenditures $1,855,250 $1,655,250
Supplies $525,000 $450,000
Subtotal Operating Expenditures
Fundamentals of Health Care Finance Problem #5
Problem #5 5 Points
Assume you are the owner of your own Healthcare clinic You purchased computer equipment for $32,500.
You expect to use it for 7 years and sell it at $4,500 (salvage value).
1) What value would appear on BOTH the balance sheet and income statement at the end of 3 years, and under what names?
2) What amount would appear on BOTH the balance sheet and income statement at the end of 1 year, and under what names?
Problem #6 10 Points
MPA Pediatrics currently provides 1,000 visits per year at a price of $50 per visit.
The variable cost per visit (variable cost rate) is $30, and total fixed costs are $15,000.
The business manager suggests that MPA Pediatrics can increase the number of visits to 1,200 per year by cutting the price per visit by 10% and increasing the fixed advertising budget by $5,000.
a. Construct the base case P&L statement. Please show Contribution Margin (per unit) in your analysis.
b. What is MPA Pediatrics break even? How many patients would have to visit MPA Pediatrics for them to have an economic profits of $6,500?
c. What is the projected P&L statement incorporating the proposed change? Please show Contribution Margin (per unit) in your anlysis
d. Based on the proposed chnges, how much would visits/volume need to increase in order for MPA Pediatrics to break even?
Problem #7 Fundamentals of Health Care Finance
Problem #7 5 Points
Consider the data in the table below for three health services organization:
Revenues Total Variable Costs Fixed Costs Total Costs Profit/Loss
a) $ 1,600.00 $ 1,300.00 $ 2,400.00
b) $ 1,150.00 $ 1,255.00 $ 2,300.00
c) $ 3,150.00 $ 625.00 $ (400.00)
Fill in the missing data using equations in excel
Problem 8 15 Points
Assume you are in the 42.5 percent personal tax bracket.
You are considering investing $50,000 in for profit Universal Health Services (UHS) bonds that carry an 11.25 percent interest rate.
a) How much interest would you receive net of the tax on the investment?
b) What is the after tax total amount of your investment?
c) Now, consider that Not for Profit Kaiser Permanante, one of the leading California Healthcare systems, has issued tax-exempt bonds that have an interest rate of 7 percent to finance a new Women’s and Children’s Pavillion.
With all else the same, should you buy $50,000 of the taxable UHS bonds at 11.25% interest, or 50,000 of Not for Profit Kaiser Permanante bonds?
d) Based on your answer to C above, please find the point (interest rate) of indifference
Fundamentals of Health Care Finance Problem #9
Problem #9 10 Points
Please develop TWO forecasts based on ABC Health Clinic’s revenues from the previous years using: 1) a moving average two year forecast and 2) Percentage change forecast
Fiscal Year Collections Percentage Change Fiscal Year Collections Moving Average
2008 $ 22,375.00 2008 $ 22,375.00
2009 $ 22,550.00 2009 $ 22,550.00
2010 $ 17,900.00 2010 $ 17,900.00
2011 $ 25,225.00 2011 $ 25,225.00
2012 $ 23,000.00 2012 $ 23,000.00
2013 $ 24,875.00 2013 $ 24,875.00
2014 $ 24,875.00 2014 $ 24,875.00
2015 $ 32,500.00 2015 $ 32,500.00
2016 $ 33,450.00 2016 $ 33,450.00
2017 $ 32,000.00 2017 $ 32,000.00
2018 $ 29,999.00 2018 $ 29,999.00
2019 $ 32,500.00 2019 $ 32,500.00
Future year (2020 Future year (2020)
Future year (2021) Future year (2021)
2 Year Collections Forecast
Problem #10 Fundamentals of Health Care Finance
Problem #10 10 Points
MPA Healthcare Walk-in reported the following assets and liabilities
1) Please prepare MPA’s balance sheet
2) What is MPA’s net working capital?
3) What is MPA’s debt ratio?
Accounts Payable 75,000
Accrued Expenses 195,000
Less: Accumulated Depreciation 500,000
Short term Investment 150,000
Long term debt 1,500,000
Net patient accounts receivables 225,600
Notes Payable 180,000
Property and Equipment 3,230,000
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