Organizations that decide to issue bonds generally go through a series of steps. Discuss the six steps.
In the health care industry, organizations that decide to issue bonds generally go through the following steps:
Step 1: The issuer decides the type of bond to issue and how to arrange the issue. The issuer then gets ready for the issuance process.
Step 2: A credit rating agency evaluates the health care institution.
Step 3: A bond-rating agency then rates the bond based on terms and value.
Step 4: The health care provider offers a lease to a government agency through a trustee.
Step 5: The government agency delivers the lease to one or more investors.
Step 6: The bond is sold to investor and the trustee gives the issuer the net proceeds (Zelman, 2003).
An alternative to traditional equity and debt financing is leasing. Leasing is undertaken primarily for what purposes?
Health care is a capital-intensive business and most health care institutions survive on traditional equity and debt financing. Healthcare institutions consider leasing for various reasons: to avoid the lengthy process of capital budget requests, to avoid technological delays, to benefit from maintenance services and for convenience.
Discuss the two major types of leases.
There are two major types of leases: operating and capital. An operating lease involves leasing service equipment for shorter periods than the fiscal life of the equipment. Operating leases are used for short-term leasing and for technological assets. Capital assets involve leasing an asset or equipment for all of its economic life. Capital lease are used for long-term leasing and for equipment that cannot become technologically obsolete (Zelman, 2003).
Discuss the terms short-term borr...
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...al budgeting decisions, firms need to take time to plan (Brown, 1992).
Discuss and list the three discounted cash flow methods.
Discounted cash flow is a valuation technique that discounts projected cash inflows and outflows to evaluate the potential value of an investment. There are three discounted cash flow methods: Net Present Value (NPV), Profitability Index (PI) and Internal Rate of Return (IRR). The net present value discounts all cash inflows and outflows at a minimum rate of return, which is usually the cost of capital. The profitability index refers to the ratio of the present value of cash inflow to the present value of cash outflows. The internal rate of return refers to the interest rate that discounts cash inflow projections to the present to ensure that the present value of cash inflows is equivalent to the present value of cash outflows (Brown, 1992).
General Practices Affiliates is considering an offer from Titus Lake Hospital to join under a provider leasing model. Under a provider leasing model, Titus Lake Hospital is purchasing General Practices Affiliates’ services. The practice will retain control of personnel, management, and practice policies. Titus Lake Hospital submitted financial reports to assure transparency during the lease agreement process. The following analysis will discuss whether Titus Lake hospital is a viable financial partner for General Practice Affiliates, possible implications of the lease, and recommendations.
The 'Secondary' of the 'Secondary' of the 'Secondary' of the 'Secondary' of the 'Secondary' of the 'Secondary' Convertible Bonds As Backdoor Equity Financing? Retrieved on June 12, 2006, from the World Wide Web at: http://www.financeprofessor.com/summaries/Stein1992ConvBond%20paper.htm. Jen, F, Choi, D, and Lee, S. (1997). Some Evidence on Why Companies Use Convertible Bonds. Journal of Applied Corporate Finance.
Monthly payments and the money put down play a big roll in obtaining a vehicle. Buying requires a down payment in the form of trade or cash whereas leasing requires little or no down payment. Monthly payments are based on the purchase price of the vehicle if bought, but if leased payments are based on the use of the vehicle. Although if leasing, the payment terms are incredibly shorter.
This object is one of the financial goals to invest properly. Marriott used discounted cash flow techniques to evaluate potential investment. It is beneficial because it is considered present time value. Projects which increase shareholder value could be formed with benchmark hurdle rates, the company can ensure a return on projects which results in profitable and competitive advantage.
Niles, Nancy J. Basics of the U.S. Health Care System. Sudbury, MA: Jones and Bartlett, 2011. Print.
McFarlan, F. Warren. CareGroup. Ed. Robert D. Austin. N.p.: Harvard Business School, 2005. 1-22. Print.
Another downfall to HMO coverage is selective-contracting. This is a process where hospitals deny treatment to patients because their...
Hospital Corporation of America (HCA). Staff Analysis Statement of Problem HCA, after following a conservative financial policy since its establishment, has entered the new decade preparing to make some changes in order to realign their financial strategy and capital structure. Since its establishment, HCA has often been used as a measure for the entire proprietary hospital industry. Is it now time for the market to realign their expectations for the industry as a whole? HCA has target goals that need to be met in order to accomplish milestones in the future.
Managed care dominates health care in the United States. It is any health care delivery system that combines the functions of health insurance and the actual delivery of care, where costs and utilization of services are controlled by methods such as gatekeeping, case management, and utilization review. Different types of managed care plans came into development by three major factors. These factors include choice of providers, different ways of arranging the delivery of services, and payment and risk sharing. Types of managed care organizations include Health Maintenance Organizations (HMOs) which consist of five common models that differ according to how the HMO is related to the participating physicians, Preferred Provider Organizations (PPOs), Exclusive Provider Organizations (EPO), and Point of Service Plans (POS). `The information management system in a managed care organization is determined by the structure of the organization' (Peden,1998, p.90). The goal of a managed care system is to provide subscribers and dependants with needed health care services at the lowest possible cost. Certain managed care plans also focus on prevention by trying to keep members healthy.
What is a bond? Bonds are often considered by investors to be “financial IOU's.” Frequently, bonds are issued from banks designed for quick, upfront cash used in lending purposes, such as loans. When purchasing a bond, the buyer pays an upfront sum of money to the seller. By the terms and conditions...
Nugent, M. (2012). Implementing clinical and financial collaboration between payers and providers. Healthcare Financial Management, 66(10), 62.
The NAL still favors buying over leasing by $1216. The only other consideration would be that lease may raise the earnings on asset ratio above 12%. But since the PV of the lease payments is greater than 90% of the FMV (assuming the purchase prices is FMV), then it would be considered a capital lease and the asset would go on the Balance Sheet. Therefore there are no earning over asset ratio advantages to leasing.
Varying in size, these companies act as a middleman between the patient and the medical facility finance office. All having slight variations, the abundance of insurers can cause confusion and often times incorrect billing. Insurance companies unlike individuals are able to negotiate a discounted payment with the hospital, but at a steep price. Of the considerable amount of money the United States put into the health industry, 35% of it went to paying for administration cost of both the insurer and the hospital (Brill,Steven, pg.34-43, Time). It should be no surprise then that the United States leads the world in every category of health care cost, often times charging twice more than the second most expensive country.
Scholastic Company is a multibillion dollar children’s book publisher and distributor with more than 9,000 worldwide employees (Scholastic Inc., n.d.). Scholastic leases some of its physical office and storage locations and equipment (as cited in Gibson, 2011). Cornaggia, Franzen, and Simin (2013) noted the reasons firms lease may be the result of a company’s financial distress which prevents sufficient capital being raised to purchase instead of leasing. They also suggested if profitability of the firm is not at issue, leasing can be used to reduce taxes thus reducing borrowing costs. Though the reason for maintaining material lease obligations is not disclosed in its financial statements (as cited in Gibson, 2011), Scholastic’s ability to satisfy its long-term commitments is important for investors, creditors, and management. The long-term borrowing capacity of Scholastic can be determined through an analysis of its times interest earned, fixed charge coverage, and debt ratios.
Barton, P.L. (2010). Understanding the U.S. health services system. (4th ed). Chicago, IL: Health Administration Press.