Financial Health Management U-VA Health System

Financial Health Management U-VA Health System

U-VA HEALTH SYSTEM
1. List all the assumptions in terms of both revenue and expenses that the University of Virginia Health System had to use in order to develop the financial projections as shown in Exhibit 2 (hint: there are more than just the ones listed in Exhibit 2). Are there any assumptions that you consider unreasonable or unrealistic? Why?

2. Recreate in excel Karen Mulroney’s financial analysis (Exhibit 2). Now, use the assumptions given to calculate for all 10 years the following items:
a. total revenue
b. net revenue
c. salary, wage, benefits expense
d. supplies, drugs, food expense
e. management fees
f. operating expenses (fixed)
g. operating expenses (variable)
h. land lease
i. construction (which will be structured as monthly loan repayments of a 30-year, $15 million loan at 8.0%),
i. Hint: You can use the calculator at: https://www.calcxml.com/calculators/loan-payment-calculator to calculate both the construction expense (principal repayment) and the interest expense on a monthly basis. Assume that the loan repayments start on January 1 of Year 1 and get paid on the 1st of every month thereafter.
j. interest expense.
k. Net Profit

3. What is average rate of return? What is the payback period? What impact would discounting the future cash flows back to the present value have on the perceived profitability of the project (you don’t have to calculate the present value, just answer from a conceptual standpoint: Which cash flows are more important from a present value perspective, and how does this impact the analysis of the project?)

4. Should the board approve the project? Why or why not? What non-financial issues might be important for board to consider?