Week3 Homework

Annual increase in income realized by a firm if the increase in cash could be invested at 7.5 percent?
Formulafor calculating the days of accounts receivable
(Accountsreceivable/Annual revenue) x number of days in a year = Accountreceivable days
Given
Accountreceivable days = 90
Accountsreceivable = $45,000,000
Therefore,annual revenue = (Accounts receivable/ Account receivable days) x 365
=(45,000,000/90) x 365
=$182.5 million
Investmentat 7.5 % = 182.5 x 107.5/100 = $196.1875
At50 days, accounts receivable = (Account receivable days x Annualrevenue)
=50x 196.1875 / 365
=$ 26.875
2.
Desiredprofit is equivalent to summation of 40 percent of total radiology,10% and 50% of radiology.
Budgeted Receipts for the Payments 

40% of the Total Radiology 
xxxx 

10% of the Total Radiology 
xxxx 

50% of the Total Radiology 
xxxx 
xxxx 

Less: 
The Budgeted Cost 
(xxxx) 

= 
The Desired profit 
xxxx 
Wherexxxx represent the values
Given
Budgeted Receipts of Payments 

40% of the Total Radiology 
xxxx 

10% of the Total Radiology 
xxxx 

50% of the Total Radiology 
xxxx 
xxxx 

Less: 
The Budgeted Cost 
(400,000) 

= 
The Desired profit 
80,000 
Solvingfor budgeted receipts of payments for 40 percent radiology:
TheTotal Budgeted Procedure = 40% x 10,000 = 4,000Procedures
TheTotal Budgeted Receipt of Payments = 4,000 volume x $ 38.00 = $152,000
Therefore,
Budgeted Receipts of Payments 

40% of the Total Radiology 
152,000 

10% of the Total Radiology 
xxxx 

50% of the Total Radiology 
xxxx 
xxxx 

Less: 
The Budgeted Cost 
(400,000) 

= 
Desired profit 
80,000 
Solvingfor the budgeted receipts of payments for the 40% total radiology.
Totalfor the Budgeted Procedure = 10% x 10,000 = 1,000 Procedures
Sincethe Price is known
So,Total Budgeted Receipt of Payments = 1,000 x $64.43 =$ 64,430
This will be represented asBudgeted Receipts of Payments 

40% of the Total Radiology 
152,000 

10% of the Total Radiology 
64,430 

50% of the Total Radiology 
xxxx 
xxxx 

Less: 
Budgeted Cost 
(400,000) 

= 
Desired profit 
80,000 
Solvingfor the budgeted receipts of payments for the 50% of total radiology,this will be calculated as shown below
Payer 
Volume % 
Discount 
Net Volume 
Total Estimated Procedure 
Total Estimated Net Volume of Procedure 
(a) 
(b) 
.(c) 
(d) 
(e) 

a x (1b) 
c x d 

Blue Cross 
20% 
4% 
19.20% 
10,000 
1,920 
Unity PPO 
15% 
10% 
13.50% 
10,000 
1,350 
Kaiser 
10% 
10% 
9.00% 
10,000 
900 
Self Pay 
5% 
40% 
3.00% 
10,000 
300 
Total 
50% 
44.70% 
4,470 
Theresults from computation table above illustrates 4,470 procedures netvolume for 50 percent radiology.
Sincethe price is still unknown, variable P will be used to stand forprice.
TotalBudgeted Receipt of Payments = 4,470 x $64.43 =$ 280,002
We’llfill the table again.
Budgeted Receipts of Payments 

40% of Total Radiology 
152,000 

10% of Total Radiology 
64,430 

50% of Total Radiology 
280,002 
496432 

Less: 
Budgeted Cost 
(400,000) 

= 
Desired profit 
80,000 
2.If the forecasted volume increased to 12,000 procedures and budgetedcosts increased to $440,000, while all other variables remainedconstant, what price should be established?
Followingthe above procedure, the results are presented as
TotalBudgeted Procedures = 40% x 12,000 = 4,800Procedures
TheTotal Budgeted Receipt of the Payments = 4,800 volume x $ 38.00 = $182,400
TheTotal Budgeted Procedure = 10% x 12,000 = 1,200 Procedures
Therefore,Total Budgeted Receipt of Payments = 1,200 x P = 1,200P,where P is the price
Payer 
Volume % 
Discount 
Net Volume 
Total Estimated Procedure 
Total Estimated Net Volume of Procedure 
(a) 
(b) 
.(c) 
(d) 
(e) 

a x (1b) 
c x d 

Blue Cross 
20% 
4% 
19.20% 
12,000 
2,304 
Unity PPO 
15% 
10% 
13.50% 
12,000 
1,620 
Kaiser 
10% 
10% 
9.00% 
12,000 
1,080 
Self Pay 
5% 
40% 
3.00% 
12,000 
360 
Total 
50% 
44.70% 
5,364 
TotalBudgeted Receipt of Payments for 50 % radiology = 5,364 x P = 5,364P
Therefore,the profit= (182,400+ 1,200P + 5,364P) – 440,000 = 80,000
1,200P+ 5,364P = 80,000 – 182,400 + 440,000
6,564P= 337,600
P= $ 51.43
Therefore,the price will be $ 51.43
3. Assumethat the only change in the original example data is that Blue Crossraises their discount to 20 percent. The price that should be sent iscalculated as shown below
Availabledata
TotalBudgeted Procedure = 40% x 10,000 = 4,000Procedures
TotalBudgeted Receipt of Payments = 4,000 volume x $ 38.00 = $152,000
TotalBudgeted Procedure = 10% x 10,000 = 1,000Procedures
TotalBudgeted Receipt of Payments = 1,000 x P = 1,000P
Payer 
Volume % 
Discount 
Net Volume 
Total Estimated Procedure 
Total Estimated Net Volume of Procedure 
(a) 
(b) 
.(c) 
(d) 
(e) 

a x (1b) 
c x d 

Blue Cross 
20% 
20% 
16.00% 
10,000 
1,600 
Unity PPO 
15% 
10% 
13.50% 
10,000 
1,350 
Kaiser 
10% 
10% 
9.00% 
10,000 
900 
Self Pay 
5% 
40% 
3.00% 
10,000 
300 
Total 
50% 
41.50% 
4,150 
TotalBudgeted Receipt of Payments = 4,150 x P = 4,150P
Profitcalculation= (152,000+ 1,000P + 4,150P) – 400,000 = 80,000
1,000P+ 4,150P = 80,000 – 152,000 + 400,000
5,150P= 328,000
P= $63.69
Theprice will be $ 63.69
Reference
Paterson, M., & Alexander, T. (2014). Healthcare Finance and Financial Management: Essentials for Advanced Practice Nurses and Interdisciplinary Care Teams . Lancaster, PA: DEStech Publications.