Suppose a hospital is in need of funds to build a new physical infrastructure for a...
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Suppose a hospital is in need of funds to build a new physical infrastructure for a department that will be functional within six months. The hospital's management team has decided to apply for a loan from a commercial bank. One of the banks is willing to provide a loan at an interest rate of 12% for a fixed period of 2 years and would require collateral of up to 76 lacks. Another bank is willing to provide a short-term loan for 7 months at an interest rate of 15% without any collateral. You are required to prepare an estimate of the hospital's working capital requirement from the following information, as requested by the banks. The hospital would like to maintain a contingency balance of 15% of the operating working capital. The projected annual billing of the hospital is 10,000 patients at an average billing of 1,500 per patient. The net profit margin on revenue is 5%. The cost of sales is 70% of the total expenses. The hospital is required to maintain a cash balance of 24,00,000. The hospital allows the customers/patients an average credit period of 25 days to settle all the pending payments. The hospital's management has negotiated an average credit period of 27 days with its suppliers. The average inventory holding period in terms of revenue requirement is 90 days. Required Calculate the working capital cycle of the hospital Calculate the total working capital required by the hospital. The answer should clearly specify what is given and what is derived and by using which formula. The decimal value can be ignored for ease of calculation Which source of funding should be chosen by the hospital? Provide reasons to support your answer If the hospital decides to look for other sources of funding and the management has adopted a hedge approach, which type of funds will meet the capital requirements of the hospital? What can be inferred about the working capital management of the hospital? Highlight at least two areas of concern and the reasons for the concern. Suppose a hospital is in need of funds to build a new physical infrastructure for a department that will be functional within six months. The hospital's management team has decided to apply for a loan from a commercial bank. One of the banks is willing to provide a loan at an interest rate of 12% for a fixed period of 2 years and would require collateral of up to 76 lacks. Another bank is willing to provide a short-term loan for 7 months at an interest rate of 15% without any collateral. You are required to prepare an estimate of the hospital's working capital requirement from the following information, as requested by the banks. The hospital would like to maintain a contingency balance of 15% of the operating working capital. The projected annual billing of the hospital is 10,000 patients at an average billing of 1,500 per patient. The net profit margin on revenue is 5%. The cost of sales is 70% of the total expenses. The hospital is required to maintain a cash balance of 24,00,000. The hospital allows the customers/patients an average credit period of 25 days to settle all the pending payments. The hospital's management has negotiated an average credit period of 27 days with its suppliers. The average inventory holding period in terms of revenue requirement is 90 days. Required Calculate the working capital cycle of the hospital Calculate the total working capital required by the hospital. The answer should clearly specify what is given and what is derived and by using which formula. The decimal value can be ignored for ease of calculation Which source of funding should be chosen by the hospital? Provide reasons to support your answer If the hospital decides to look for other sources of funding and the management has adopted a hedge approach, which type of funds will meet the capital requirements of the hospital? What can be inferred about the working capital management of the hospital? Highlight at least two areas of concern and the reasons for the concern.
Expert Answer:
Answer rating: 100% (QA)
To calculate the working capital cycle and the total working capital required by the hospital well need to consider various components and formulas Lets break down the calculations step by step 1 Work... View the full answer
Related Book For
Microeconomics
ISBN: 978-1464187025
2nd edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson
Posted Date:
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