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# Healthcare Finance - Speech or Presentation Example

Summary
It will need \$3,000,000 of total assets to generate \$ 5,000,000 in revenues. Furthermore, the group expects to have a profit margin of 5 percent. The group Is considering two financing alternatives…

## Extract of sample "Healthcare Finance"

Healthcare Finance Southwest physicians, a medical group practice, are just being formed. It will need \$3,000,000 of total assets to generate \$ 5,000,000 in revenues. Furthermore, the group expects to have a profit margin of 5 percent. The group Is considering two financing alternatives. First, it can use all-equity financing by requiring each physicians to contribute his or her pro rata share. Alternatively, the practice can finance up to 50% of its assets with a bank loan. Assume that the debt alternate has no impact on the expected profit margin.
What is the expected return on equity (ROE) if the group finances with 50 percent debt?
Net profit \$ 5,000,000 x 0.05 = \$250000
Consequently ROE = \$250000/\$3000000 = 8.3%
What is the expected return on equity (ROE) if the group finances entirely with equity capital?
Bank loan = 50%
Equity = 50%
Therefore
ROE = \$250000/\$1500000 = 16.67%
2) Consider the following uneven cash flow stream:
Year
Cash flow
0
\$0
1
350
350/(1+0.10)^1 = 318.1818
2
500
500/(1+0.10)^2 = 413.22
3
650
650/(1+0.10)^3 = 488.35
4
750
750/(1+0.10)^4 = 512.26
5
750
750/(1+0.10)^5 = 465.69
Total
2197.711

Add an outflow (or cost) of \$1,000 at year 0. What is the present value (or net present value) of the stream?
2197.711 + 1000 = \$3197.71
What is the present value if the opportunity cost (discount) rate is 10%?
Year
Cash flow
0
\$0
1
350
350/(1+0.10)^1 = 318.1818
2
500
500/(1+0.10)^2 = 413.22
3
650
650/(1+0.10)^3 = 488.35
4
750
750/(1+0.10)^4 = 512.26
5
750
750/(1+0.10)^5 = 465.69
Total
2197.711
3) Assume venture healthcare sold bonds that have a 20 year maturity, a 11 percent coupon rate with annual payments, and a \$1,000 par value.
What would be the value of the bonds three years after issue if the required interest rate were 7 percent?
=9.76 + 316.46 = 326.22
What would be the value of the bonds three years after issue if the required interest rate were 13 percent?
6.72 + 125.15 = 131.88
Suppose that two years after the bonds were issued, the required interest rate fell to 7 percent, what would be the bond’s value?
10.05 + 295.86 = 305.91
Suppose that two years after the bonds were issued, the required interest rate rose to 13percent, what would be the bond’s value?
375.94 + 12.70 = 363.24
4) Assume that you are the chief financial officer at porter memorial hospital . the CEO has asked you to analyze two proposed capital investments. The project expected cash flows:
Year
Project X
Project Y
0
(\$10,000)
(\$10,000)
1
5,500
3,500
2
4,000
3,500
3
4,000
3,500
4
1,500
3,500
What is the internal rate of return (IRR) for project X?
Solving for R which is the IRR, we get 22.483%
What is the net present value (NPV) for project X?
What is the net present value (NPV) for project Y?
What is the internal rate of return (IRR) for project Y?
Solving for R which is the IRR, we get 14.963%
What is the project payback period for project X?
What is the project payback period for project Y?
Which project is acceptable?
Project X is acceptable since it has the highest NPV value and takes the minimum years as the payback period. Project x would be most beneficial. Read More
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