A client plans to send a child to college for four years starting 18 years from now. Having set aside money for tuition, she decides to plan for room and board also. She estimates these costs at $20,000 per year, payable at die beginning of each year, by the time her child goes to college. If she starts next year and makes 17 payments into a savings account paying 5 percent annually, what annual payments must she make?
Concept: In annuity due, payments are made at the beginning of the year. Present value of Annuity Due = (1+r)*Annual Cash Flow*[1-1/(1+r)^n]/r Future value of Annuity Due = (1+r)*Annual Cash Flow*[(1+r)^n-1]/r Where r -> Interest Rate n -> Number of Periods (in Year) Solution: Cost of room and board = $20000 per year Time period = 4 Years Interest Rate = 5% (Annually) Present Value of Annuity (at the starting of 18th year) =…
(1+5%)^4]/5% = $74464.96 For 17 year annuity: Future Value of Annuity = $74464.96 Time Period = 17 Years According to Future Value of Annuity Formula: $74464.96 = (1+5%)*Annual Cash Flow*[(1+5%)^17-1]/5% So, Annual Payments= $2744.50 Therefore, she needs to make an annual payment of $2744.50 .
Suppose you have two limit orders outstanding on two different stocks. The probability that the first limit order executes before the close of trading is 0 45 The probability that the second limit order executes before the close of trading is 0.20. The probability that the two orders both execute before the close of trading is 0.10. What is the probability that at least one of the two limit orders executes before the close of trading?
Since the two limit orders outstanding are on two different stocks, it is a case of finding the probability involving two independent events. Probability that at least one of the two limit orders executes before the close of trading = Probability of first limit order executing P(1) + Probability of second limit order executing P(2) – probability of both limit orders executing P(1 x 2) = 0.45 + 0.20 – 0.10 = 0.55…
ote : the earlier solution calculated the probability of both events happening = P(1) * P(2) = 0.45 * 0.20 = 0.09. That is why the earlier solution was 0.56. = 0.45 + 0.20 – 0.09 But since the data for P(1 x 2) is given = 0.10, it should be considered. Hence , the new solution.
show the statement of operations and balance sheet for Maryville Community Hospital for the years ended 20X0 and 20X1. Compute the following ratios for both years: current, quick, acid tests, days in accounts receivable, days cash on hand, average payment period, operating revenue per adjusted discharge, operating expense per adjusted discharge, salary and benefits as a percentage of total operating expense, operating margin, non-operating revenue, return on total assets and net assets, total asset turnover, fixed asset turnover, age of plant, long-term debt to net assets, and net assets to total assets. Comment on Maryvilles liquidity, efficient use of assets, revenue, expense and profitability, and capital structure, citing at least one ratio per category. Use the national hospital industry benchmarks listed in Exhibit 4-16a for 100 beds, and assume that its adjusted discharges were 2,200 for 20X0 and 2,400 for 20X1.
Maryville Community Hospital Statement of Operations (in thousands) for the Years Ended December 31, 20X1 and 20X0
Net patient service revenue
Net assets released from restriction
Total operating revenues
Salaries and benefits
Supplies and other expenses
Total operating expenses
Excess of revenues over expenses
Increase (decrease) in net assets
Maryville Community Hospital Balance Sheet (in thousands) for the Years Ended December 31, 20X1 and 20X0
Cash and cash equivalents
Net patent receivables
Total current assets
Plant, property, and equipment
Gross plant, property, and equipment
(less accumulated depreciation)
Net plant. property, and equipment
Board designated funds
Total current liabilities
Total long-term liabilities
Total liabilities and net assets
If a business manager deposits $30,000 in a savings account at the end of each year for twenty years, what will be the value of her investment:
a. at a compounded rate of 13 percent?
b. at a compounded rate of 20 percent?
c. What would the outcome be in both cases if the deposits were made at the beginning of each year?
Annuity Value = 30000 Time = 20 Years a. Rate = 13% At the end of each year Present Value of Annuity = C*(1-(1 i)^-n)/i Hence, PV = 30000*(1-(1 0.13)^-20)/0.13 PV = $210742.50 b. Rate = 20% At the end of each year Present Value of Annuity = C*(1-(1 i)^-n)/i Hence, PV = 30000*(1-(1 0.20)^-20)/0.20 PV = $146087.40 c. i. When Rate = 13% At the beginning of year Present Value of…
Annuity = C C*(1-(1 i)^-(n-1))/i Hence, PV = 30000 30000*(1-(1 0.13)^-19)/0.13 PV = $238139.10 ii. When Rate = 20% At the beginning of year Present Value of Annuity = C C*(1-(1 i)^-(n-1))/i Hence, PV = 30000 30000*(1-(1 0.20)^-19)/0.20 PV = $175304.90
In 2010 Lilliputian County Hospital”s total patient revenues were $15 million. In 2019 patient revenues are expected to be $30 million. What is the compound growth rate in patient revenues over this time period?
Initial Revenue = $15 million Final Revenue = $30 million Duration = 9 years Compound Annual Growth Rate = ((Final…
Value/Initial Value)^(1/n)) – 1 CAGR = ((30/15)^(1/9)) – 1 = CAGR = 8.0059%
What avenues are available for for-profit and not-for-profit health care providers to increase their equity position?
Below are the avenues available for for-profit and
not-for-profit health care providers to increase their equity position: 1. Physical plant needs (upgrades, renovations, expansions) 2….
ng bond debts 3. Pension plans These avenues demand for large amounts of capital, which can be arranged from
private equity firms.
The Annuity Payments Needed to Reach a Future Value with Monthly Compounding.
You are planning to purchase a $120,000 house by making a down payment of $20,000 and borrowing the remainder with a 30-year fixed-rate mortgage with monthly payments. The first payment is due at t = 1. Current mortgage interest rates are quoted at 8 percent with monthly compounding. What will your monthly mortgage payments be?
Present Value = A[1-1/(1+r/m)^mN/r/m] 100,000 = A[(1-1/(1.0066667)^360)/0.0066667 A = $ 733.76 Monthly mortgage payments = $ 733.76…
Present Value=100,000 r = 8% = 0.08 m = 12 r/m= 0.08/12 =0.006667 N= 30 mN = 12*30 = 360
Maturity risk recognizes that:
(a)the longer you hold your money, the more you accumulate.
(b)if you have loaned your money to someone else, you cannot use it yourself, even if a better opportunity arises.
(c)the longer we hold an investment, the harder it is to remember why we made it.
(d)the older your business is, the easier it is to get a loan.
Maturity risk recognizes that: (a)the longer you hold your money, the more you accumulate. As, The purpose of maturity risk premium is to raise the interest rates specifically on long-term…
bonds as compared to the short-term bonds. So this way longer the holding period of money, greater will be the accumulation.
The person recommending a new capital investment:
(a)will be conservative.
(b)will include all investment costs and operating expenses associated with the investment in his or her recommendation.
(c)is likely to be optimistic.
(d)will intentionally overestimate costs in order to be safe.
Answer is (b). The person recommending a new capital investment will include all investment costs and operating expenses associated with the investment in his or her recommendation because Whenever a…
new capital investment is recommended, all the costs associated with it are considered so that an appropriate decision can be taken.
Depreciation, being a noncash expense:
(a)increases income and reduces cash flow.
(b)increases income and increases cash flow.
(c)reduces income and increases cash flow.
(d)reduces income and reduces cash flow.
Answer is (c)reduces income and increases cash flow. Because, While preparing Cash flow statements, when the cash flows from operating activities is computed, the depreciation which is already deducted from the net…
e (as an expense) is added back to the Net income,because of its nature as a non cash expense, to compute the cash flows from operating activities.