Capital Budgeting Process
Health Services Finance
April 1, 2012
Organizations that decide to issue bonds generally go through a series of steps. Discuss the six steps. These are the six steps that organizations use when they are issuing bonds. These steps are: 1. “The healthcare borrower updates its capital plan, measures its debt capacity and attempts to get its house in order” (Zelman, McCue, & Glick, 2009) 2. “The healthcare borrower selects key parties involved in the bond issuance” (Zelman, McCue, & Glick, 2009). 3. “The health care borrower is evaluated by a credit rating agency” (Zelman, McCue, & Glick, 2009). 4. “The bond is rated by the credit rating agency” (Zelman, McCue, & Glick, 2009). 5. “The health care borrower enters into a loan agreement with the governmental authority, the issuer of the bonds” (Zelman, McCue, & Glick, 2009). 6. “The underwriters sell the bonds to bondholders at the public offering price, and the trustee provides the health care provider with the net proceeds” (Zelman, McCue, & Glick, 2009) An alternative to traditional equity and debt financing is leasing. Leasing is undertaken primarily for what purposes? Leasing is undertaken for the primary purpose is it protects the organization from having to own equipment which depreciates and isn’t worth paying interest and payments for something that is not worth the money. This saves the company from paying negative equity. Also another reason would be they would receive a lower interest rate on the leasing loan then on a bank loan where the interest is high and not much is being paid to principal. Discuss the two major types of leases.
The two types of leases are Operational and Financial.
An operating lease is a lease which the manufacture provides the equipment, financing and maintenance. With this type of lease the organization pays the lessor in two different ways, either under conventional terms of a fixed...
Cited: Cleverley, W. O., Song, P. H., & Cleverley, J. O. (2011). Essentials of Health Care Finance Seventh Edition. Sudbury: Jones & Bartlett Publishing.
Zelman, W. N., McCue, M. J., & Glick, N. D. (2009). Financial Management Of Heathcare Organizations: An Introduction of Fundamental Tools, Concepts, and Applications. San Francisco : Josey-Bass.
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