Subject FINANCE

Finance 1

Subject

FINANCE

QUESTION1

Annualnet patient revenue = $ 150,000,000

Reductionin collection time = Collection time (centralized system) –Collection time (lock box system)

=6days – 1day = 5 days

Amountof funds released = Average daily collection × Reduction incollection time – Annual bank fee

=($ 150,000,000/365days) ×5 +$2,000 × 12

= $ 2078794.52

Annualsavings= Average daily collection ×Reduction in collection time × Assumed yield

= ($ 150,000,000/365) × 5 × 8/100

= $ 164,383.56

(Keown,2004)

QUESTION2

Surplusfunds = $ 200,000

Transactioncosts= $ 2,200

Period=3 months

InterestRate= Day count = (Total days in period/Total annual days) ×100%

=31+30+31 (3 months)/ 365 × 100

=92/365 × 100

=25.2%

RequiredAnnual Yield= where P=Available Principal

I=Interest rate per year

n=number of years

AvailablePrincipal =Principal- Transaction costs

=$200,000-$2,200

=$197,800

RequiredAnnual Yield=

=$247,645.60

QUESTION3

Bankloan = $ 1,000,000

a)

Bankloan =1,000,000

Compensationbalance = $ 0

Interestrate = 10%

Interest= 10/100 × 1,000,000

=$ 100,000

Effectiveinterest rate = (bank loan – compensation balance)/ the interest

=(1,000,000 – 0)/ 100,000

=10%

b)

Bankloan =1,000,000

Compensationbalance = $ 200,000

Interestrate = 9%

Interest= 9/100 × 1,000,000

=$ 90,000

Effectiveinterest rate = (bank loan – compensation balance)/ the interest

=(1,000,000 – 200,000)/ 90,000

=8.89%

c)

AvailablePrincipal= Full principal – Nominal Interest

NominalInterest = Interest rate × Loan – Compensating Balance

CompensatingBalance= Compensating balance requirement × Loan

=20% × $1,000,000

=$200,000

NominalInterest = 6% × ($1,000,000- $200,000)

=6%×$800,000

=$48,000

AvailablePrincipal = $1,000,000-$48,000

=$952,000

InterestRate = Nominal Interest / Available Principal ×100%

=$48,000/$952,000×100

=5%

(Whittington,et al, 2010)

QUESTION4

Effectiveinterest rater=

Where

r= effective annual rate

i= nominal rate

n= number of compounding period per year

References

Keown,A. J. (2004). Beijing: Qinghua University Press, page 476

Whittington,R., &amp Delaney, P. R. (2010). WileyCPA exam review 2011.Hoboken, NJ: Wiley.page 249

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