Lena Watson, Instructor
June 6, 2011
Financial Indicators Decision Making Simulation Form
Date: June 6, 2011
What are the potential risks for each choice?
The potential risk for the Tax exempt revenue bond is the collateral requirement of the escrow on gross receivables for EHC. If there is a decline in the inpatient population, and low or slow Medicare payment to hospital the gross receivables would decline for EHC. EHC would pay more because they would have less control of their revenue because the lender has to be paid their part of the gross receivables. EHC has to use the entire loan in three years but EHC has not plan to finish the expansion until the four years. The hospital debt is considered to be Junk grade bond so the interest rate is higher on the Tax Exempt and the private funding.
The potential risks for HUD 242 loan insurance is the interest rate drops in the first year the bond is issued, and the bond is not callable for eight years so EHC is paying more is interest until EHC can buy back the bonds and reissue at the lower interest rate.
Finally private bank funding potential risks are it’s the most expensive options with high interest rate, and high financing costs, if EHC has any unforeseen problems or loss of revenue may be hard for EHC to repay the loan
What are the advantages and disadvantages of choosing these financial risks?
Tax Exempt Revenue Bonds
The advantage of choosing this funding is the cost of issuance is the lowest of the three choices, the bonds are callable,...