Health Care Financial Accounting
Good cash flow is essential to every organization, including hospitals, where quality care of every patient is essential. A steady and consistent cash flow can help improve the hospitals borrowing power, which will increase and maintain the income level.
My challenge was to decide on the best strategy to solve the cash flow problem at Elijah Heart Center (EHC). In addition, I had to implement two measures to achieve a cost saving target of $750,000 for the first quarter.
In order to cover the remaining shortfall, I recommended “Reducing Proportion of Agency ...view middle of the document...
45 percent, there is no prepayment limitation for this loan option. This will help the hospital pay off the loan in three months, with $32, 603 paid out as interest, as compared to loan option two, which could not be prepaid before six months.
Buying a refurbished High-Speed CT Scanner is the best option for EHC. A High-Speed CT Scanner is medium technology equipment with a useful life of ten years (Tobin, 2007). The equipment could become obsolescent in a period of five years or less, and will need to be upgraded. By buying a five year old CT Scanner, the hospital can use it to the end of the useful life, and then upgrade it. This option is the most economical option, as the refurbished CT Scanner is not as expensive as the other options. The equipment will be recorded as an asset in the balance sheet; it will be of a much lesser value. Buying refurbished equipment is low at nine percent when compared to buying a new one.
Acquiring the X-Ray Machine on a capital lease is the best option for EHC. This option. This option has a higher present value of payments compared to taking an operating lease or buying refurbished equipment. The present value in this case is lower than buying new equipment or taking on a new lease. This loan option does not take care of technology advancements, buying the equipment will be the best option, because the equipment will last for a long period of time. The life of the X-Ray machine is 15 years.
Acquiring the Ultrasound System on an operating lease is the best option for EHC. An Ultrasound System is high technology equipment with a useful life of five years. The operating lease has a lower upfront payment and lower monthly installment s. Furthermore, the upgrade option of the operating lease will assist in taking care of technological obsolescence. Though the hospital will be paying more for an operating lease in the long run, they will have the latest technology.
Funding for Capital Expansion
In order to choose the best option, I had to analyze the cost of funding, net present value, collateral requirements, prepayment limitations, and deadline for using the funds. I recommended the “HUD 242 Loan Insurance...