1. What factors might cause a facility to call in its bond? Name at least two. 2
ID: 2547110 • Letter: 1
Question
1. What factors might cause a facility to call in its bond? Name at least two.
2. What are the disadvantages to a tax-paying entity in issuing debt as opposed to equity?
3. Use the following information to answer questions a, and b:
You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below:
It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay on average $38.00 per procedure. Approximately 10 percent of the patients are cost payers. The remaining charge payers are summarized below:
20
4
15
10
10
10
5
40
50%
a. If the forecasted volume increased to 12,000 procedures and budgeted costs increased to $440,000, while all other variables remained constant, what price should be established?
b. Assume that the only change in the original example data is that Blue Cross raises their discount to 20 percent. What price should be set?
Explanation / Answer
Answer a: Facilities that can cause to call in bond
(i) Prevailing interest rates were lower than the coupon rate
(ii) get out some bond conditions that does not suit the business requirements
(b) Disadvtages of issuing debt as opposed to equity:
(i) Debt equity ratio goes higher, which is also not good above a limit
(ii) Returns required by equity also went up due to the fact of paying more profits to debtholders first, and also due to the increase of risk of realisation of principal in the event of liquidation
Answer C:
Pricing should be done in such a manner that sum of amount from procuedures (after discount) is equal to cost and desired profit.
So here let the price of procedures except radiology be X so
Sum of amount from Medicare patients, cost patients, blue Cross, Unity, Kraiser, Self pay
4000*38+1000*X+2000*(1-0.04)X+1500*(1-0.1)X+1000*(1-0.1)X+500*(1-0.4)X = 400000+80000
Solve it for X, you get value :- 59.96
This should be the price of radiology proedure that should be charged from Different Customer (pre discounted) any discount can be given on this.
Answer a: if forecasted volume increased to 12000 and budgeted cost increase to 440000 we get following equation
12000*40%*38+12000*10%*X+12000*20%*(1-0.4)X+12000*15%*(1-0.1)X+12000*10%*(1-0.1)X+12000*5%*(1-0.4)X = 440000+80000
Solve it for X: 51.43
Price decreased due to extra quantity sold for no extra desired profit
Answer b:
if we increase the discount of Blue Cross to 20%, Then equation will be following (change shown in bold)
4000*38+1000*X+2000*(1-0.20)X+1500*(1-0.1)X+1000*(1-0.1)X+500*(1-0.4)X = 400000+80000
Solve it for X: 63.69
Price increased due to the extra discount given to Blue Cross
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