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FIN WK 10 Assignement

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Question;17.4) Consider the following financial;statement for BestCare HMO, a non-for-profit managed care plan;Best HMO;Statement of Operations and Change in Net Assets;Year ended June 30, 2011;(in thousands);Revenue;Premium earned $26,682;Co-Insurance 1,689;Interest and other income 242;Total;revenue $28,613;Expenses;Salaries $15,154;Medical supplies and drugs 7,507;Insurance 3,963;Provision for bad drugs 19;Depreciation 367;Interest 385;Total;expenses $27,395;Net;Income $;1,218;Net;assets, beginning of year $ 900;Net;assets, end of year $;2,118;BestCare HMO;Balance Sheet;June;30, 2011;(in;thousands);Assets;Cash and cash equivalents $ 2,737;Net premium receivable 821;Supplies 387;Total;current assets $ 3,945;Net property and equipment $;5,924;Total assets $;9,869;Liabilities;and Net Assets;Accounts payable-medical services $ 2,145;Accrued expenses $ 929;Notes Payable $ 141;Current portion of long-term debt $ 241;Total;current liabilities $;3,456;Long-term debt $;4,295;Total;liabilities $;7,751;Net assets (equity) $;2,118;Total liabilities and net assets $;9,869;Questions;A.);Perform a Du point analysis on;BestCare. Assume that the industry average ratios are as follows;Total Margin 3.8%;Total asset;turnover 2.1%;Equity;multiplier 3.2%;Return on Equity;(ROE) 25.5%;B.);Calculate and interpret the;following ratios for BestCare;Industry Average;Return on assets;(ROA) 8.0%;Current ratio 1.3;Days cash on;hand 41 days;Average;collection period 7 days;Debt ratio 69%;Debt-to-equity;ratio 2.2;Times interest;earned (TIE) ratio 2.8;Fixed asset;turnover ratio 5.2;18.2) Big Sky Hospital plans to obtain a;new MRI that costs $1.5 million and has an estimated four-year useful life. It;can obtain a bank loan for the entire amount and buy the MRI, or it can lease;the equipment. Assume that the following facts apply to the decision;?;The MRI falls into the three-year;class for tax depreciation, so the MACRS allowances are 0.33, 0.45, 0.15, and;0.07 in years 1 through 4, respectively.;?;Estimated maintenance expenses;are %75,000 payable at the beginning of each year whether the MRI is leased or;purchased.;?;Bid Sky?s marginal tax rate is;40 percent.;?;The banl loan would have an;interest rate of 15 percent.;?;If leased, the lease (rental);payments would be $400,000 payable at the end of each of the next four years.;?;The estimated residual (and;salvage) value is $250,000.;Questions;A.);What are the NAL and IRR of the;lease? Interpret each value.;B.);Assume now that the salvage;value estimate is $300,000, but all other facts remain the same. What is the;new NAL? The new IRR?

 

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