Week 3 Homework

Week3 Homework

  1. 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 (1-b)

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 (1-b)

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 (1-b)

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., &amp Alexander, T. (2014). Healthcare Finance and Financial Management: Essentials for Advanced Practice Nurses and Interdisciplinary Care Teams . Lancaster, PA: DEStech Publications.