Healthcare Financial Management: Bond and Capital Budgeting Analysis

This report presents a comprehensive financial analysis for Broward General Hospital, addressing key aspects of healthcare financial management. It includes a project investment analysis for sonogram equipment, calculating the payback period, net present value (NPV), and profitability index (PI) to determine whether the investment is financially viable. Additionally, the report addresses bond market fundamentals, providing insights into how various factors affect bond values and interest rates, as well as a post-tax cost of debt calculation. The analysis also covers capital budgeting concepts, discussing project classifications and the importance of strategic alignment in investment decisions. The student has provided detailed calculations, formulas, and recommendations based on the given financial data.

Running head: HEALTHCARE MANAGEMENT
Healthcare Management
Name of the Student:
Name of the University:
Author’s Note:

1HEALTHCARE MANAGEMENT
Table of Contents
Question 1........................................................................................................................................2
Question 3........................................................................................................................................3
Question 4........................................................................................................................................4
Question 5........................................................................................................................................5

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Question 1
Project Investment Analysis
Particulars Year 0 1 2 3 4
Equipment Cost 450,000$
Shipping Cost 100,000$
Initial Investment 550,000$
Scrap Value 50,000$
Cash Inflows
Price Per Case 100$ 100$ 100$ 100$
Number of Cases 6,000$ 6,000$ 6,000$ 6,000$
Revenue 600,000$ 600,000$ 600,000$ 600,000$
Less: Supplies 50$ 50$ 50$ 50$
Number of Cases 6,000$ 6,000$ 6,000$ 6,000$
Total COGS 300,000$ 300,000$ 300,000$ 300,000$
Labor Cost 150,000$ 150,000$ 150,000$ 150,000$
Depreciation 125,000$ 125,000$ 125,000$ 125,000$
Total Costs 575,000$ 575,000$ 575,000$ 575,000$
Cash Flow Before Tax 25,000$ 25,000$ 25,000$ 75,000$
Taxation@30% 7,500$ 7,500$ 7,500$ 22,500$
Cash Flow After Tax -550,000$ 17,500$ 17,500$ 17,500$ 52,500$
Add: Depreciation 125,000$ 125,000$ 125,000$ 125,000$
Free Cash Flows -550,000$ 142,500$ 142,500$ 142,500$ 177,500$
Discount Rate @ 25% 1 0.8 0.64 0.51 0.41
Discounted Cash Flows -550,000$ 114,000$ 91,200$ 72,960$ 72,704$
Net Present Value -199,136$
Question 1(Investment Analysis)

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The project analysis has been done for a sum of four years whereby relevant cash inflows and
outflows would be considered. The discount rate that has been well used for the purpose of
computing the Discounted Cash Flow is Corporate Discount RATE + Inflation Rate that is
around 25%.
a) Payback Period for the project has been calculated by dividing the discounted cash inflows or
NPV divided by expected initial expenditure.
Payback Period Year 0 1 2 3 4
Investment Amount $ -550,000 $ 142,500 $ 142,500 $ 142,500 $ 177,500
Amount Recovered $ -407,500 $ -265,000 $ -122,500 $ 55,000
Payback In Years 0 1 2 3 0.69
Payback Period 3.69
b) Net Present Value has been well calculated by well calculating the difference that is between
the P.V of cash inflows and P.V of cash outflows. The NPV was calculated to be around -
$199,136.
c) The profitability index was calculated to be around -$2.762 and was calculated by taking the
given formula:
P.I: (Investment/Annual Cash Flows)
d) The project should be rejected as it is creating negative wealth.
Question 3
Base Case Answer where the Bond has 10 years then the present value of bond will be as
follows:

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The formula that has been applied for calculating the Present Value after time period well
changes and interest rate changes is as follows:
Present Value (P.V): (Rate, NPER, PMT, FV, TYPE)
Base Case
Face Value 1000
Coupon Rate 12%
Coupon Amt. 120
Time 10
Int. Rate 7%
Present Value $ -1,351.18
Question 3 A
Face Value 1000
Coupon Rate 12%
Coupon Amt. 120
Time 8
Int. Rate 7%
Present Value $ -1,298.56
Question 4
Post Tax Cost of Debt: Pretax Cost of Debt*(1-Tax Rate)
Question 4 A
Cost of Debt
11.00
%
Tax Rate 0.00%
Post Tax Cost of Debt
11.00
%
Question 4 B
Question 3 B
Face Value 1000
Coupon Rate 12%
Coupon Amt. 120
Time 8
Int. Rate 13%
Present Value $ -952.01

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Cost of Debt
11.00
%
Tax Rate
20.00
%
Post Tax Cost of Debt 8.80%
Question 4 C
Cost of Debt
11.00
%
Tax Rate
40.00
%
Post Tax Cost of Debt 6.60%
Question 5
Net Present Value has been well calculated by well calculating the difference that is between the
P.V of cash inflows and P.V of cash outflows.
Particulars Project A Project B
Investmen
t -750,000 -750,000
1 200,000 500,000
2 200,000 150,000
3 200,000 150,000
4 300,000 100,000
NPV -£43,386.88 £8,646.33
Formula
=NPV(10%,B2:B
6)
=NPV(10%,C2:C
6)
Project B is financially Acceptable