1. Your firm has $45.0 million invested in accounts receivable, which is 90 days of net revenues. If this value could be reduced to 50 days, what annual increase in income would your firm realize if the increase in cash could be invested at 7.5 percent?
2. Your firm’s strategic plan calls for a net increase in total assets of $100 million during the next five years, which represents an annual compounded growth rate of 15 percent. Equity growth is also projected to be 15 percent per year. Assume that the firm’s Total Asset Turnover will average 1.0 in each of the five years and Equity Financing percentages will remain constant at 50 percent. The firm projects Reported Income Index values to be 0.85 each year. What is the required Total Margin that will make this plan financially feasible?
Use the following information to answer questions 2, 3, and 4:
You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below:
Budgeted Procedures 10,000
Budgeted Cost $400,000
Desired Profit $80,000
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:
Payer Volume % Discount %
Blue Cross 20 4
Unity 15 10
Kaiser 10 10
Self-Pay 5 40
3. What rate must be set to generate the required $80,000 in profit in the preceding example?
4. 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?
5. 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?