Financial Analysis

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Financial Indicators Decision Making Simulation Form

Date: April 9 2013 Team: “A”

Team Members:

What cost cutting options were chosen? Explain why those were chosen.

Reducing the utilization of agency staff - It decreases the amount of premiums the hospital pay to the staffing agencies and the management fees. The cost for contract staff is nearly twice to those employees hired by the hospital directly.

Changing the skill mix - It allows the nurses to delegate non essential nursing tasks thereby allowing them to direct their efforts to more complicated and essential nursing tasks.

Which cost cutting loan option was chosen? Explain why.

Loan option 1 - it will allow EHC to have adequate cash flow in the next three months, provide them the opportunity to pay the loan within 12 months or less without prepayment penalty.

Which strategies for equipment acquisition were chosen? Explain why. High Speed CT Scanner – Refurbished Equipment Loan – Useful life of 10 years, would probably need to upgrade in about 5 years; low interest rate for a refurbished equipment.

X-Ray machine – Capital Lease – Useful life is 15 years; Option of buying the equipment at a bargain price later

Ultrasound System – Operating Lease – Useful life of 5 years. Will ensure having the latest technology

Which funding option was chosen for the EHC expansion? Explain why.

HUD 242 Loan Insurance program - allows the hospital to have the debt financed as an investment grade ( either AA or AAA), which provides the lowest borrowing rate available in the capital market. There is no deadline in using the funds.

What are the potential risks for each choice? Why?

Difference in actual patient volume from projected volume, additional expenses that are not included in original budget from unforeseen events such as calamities; unavailability or delay in deliveries of equipment purchased are some factors that might alter the results of the...
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