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1.Your firm has $45.0 million invested in accounts receivable, which is90 days of net revenues. If this value could be reduced to 50 days,what annual increase in income would your firm realize if theincrease in cash could be invested at 7.5 percent?
Letx = the annual increase in income
x= [(45,000,000/360 days) * (90 days – 50 days)] [7.5/100]
x= [(125,000) (40)] [7.5/100]
x= [5,000,000] [7.5/100]
x= [37,500,000/100]
x= 375,000
2.Your firm’s strategic plan calls for a net increase in total assetsof $100 million during the next five years, which represents anannual compounded growth rate of 15 percent. Equity growth is alsoprojected to be 15 percent per year. Assume that the firm’s TotalAsset Turnover will average 1.0 in each of the five years and EquityFinancing percentages will remain constant at 50 percent. The firmprojects Reported Income Index values to be 0.85 each year. What isthe required Total Margin that will make this plan financiallyfeasible?
Given:Total asset in five years = $100,000,000
AnnualCompounded Growth Rate = 15%
Presentvalue = $49,717,673.53
TotalMargin = [$49,717,673.53/$100,000,000]
TotalMargin = 0.50
Usethe following information to answer questions 3, 4, and 5: Youhave been asked to establish a pricing structure for radiology on aperprocedure basis. Present budgetary data is presented below:
BudgetedProcedures 10,000
BudgetedCost $300,000
DesiredProfit $100,000
Itis estimated that Medicare patients comprise 40 percent of totalradiology volume and will pay on average $38.00 per procedure.Approximately 10 percent of the patients are cost payers. Theremaining charge payers are summarized below:
Payer Volume% Discount %
BlueCross 10 4
UnityPPO 25 10
Kaiser 10 10
SelfPay 5 40
50%
3.What rate must be set to generate the required $80,000 in profit inthe preceding example?
Rate= ($300,000/10,000) /100
Rate= 0.3%
Rate= [[$300,000 – ($100,000 – $80,000)]/10,000]*100
Rate= [$280,000/10,000]/100
Rate= 0.28%to generate the required $80,000 in profit
4.If the forecasted volume increased to 12,000 procedures and budgetedcosts increased to $440,000, while all other variables remainedconstant, what price should be established?
Price= $440,000/12000
Price= $36.67
5.Assume that the only change in the original example data is that BlueCross raises their discount to 20 percent. What price should be set?
Price= $36.67 (20/100)
Price= $36.67 – 7.334
Price= $29.34
6.You wish to retire a $10,000,000 bond that can be called in 5 yearsfor 110 percent of par value, or $11,000,000. You also need to makeyearend interest payments of $700,000 per year in each of the nextfive years. If you can invest money at 8 percent, how much money mustyou set aside today to meet these obligations?
Youwill need to deposit/invest $7,486,415.17 now in order for investmentto grow to $11,000,000 over the course of the next 5 years.

Year
Interest
Future Value
Present Value
 
$7,486,415.17
1
$598,913.21
$8,085,328.38
2
$646,826.27
$8,732,154.65
3
$698,572.37
$9,430,727.02
4
$754,458.16
$10,185,185.19
5
$814,814.81
$11,000,000.00
Totals
$3,513,584.83
$11,000,000.00