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BFA503 Introduction To Financial Management
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BFA503 Introduction To Financial Management
0 Download3 Pages / 537 Words
Course Code: BFA503
University: University Of Tasmania
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Country: Australia
Question:
You have been hired in the finance department at a large, metropolitan for-profit hospital. Your duties are very important to the entire hospital in terms of financing operating costs. Additionally, you are also in charge of 3 employees who work under you to help with the day-to-day accounting activities. Your role includes budgeting, managing the general ledger accounts, utilizing financial formulas to perform accounting activities, and training and development of your 3 employees. This professional career is exciting and challenging for you but is also enjoyable and rewarding as you work your way up the career ladder toward reaching your goal of becoming the chief executive officer (CEO) of the hospital. Due to scarce resources, your organization is faced with the decision of choosing between mutually exclusive projects (I.e., Build a Rehab. Center or Build a Neonatal Wing).
You have been asked to develop a financial analysis of two projects and based on Net Present Value (NPV), Return on Investment (ROI), and Profitability Index (PI).
Briefly explain the following concepts and their use/value in assessing the validity of the two mutually exclusive projects:
NPI
ROV
PI
Answer:
In the given scenario, due scarce resources the organization of the metropolitan non profit hospital is facing challenges in making a decision of choosing between two projects that are mutually exclusive. The two choices include construction of a center for rehabilitation or to build a neonatal wing. In order to come into a conclusion, analysis is to be made that includes few techniques to assess the validities that include:
NPV: The NPV refers to the Net present value, which is the differentiation between the cash inflow present value and the current cash outflow value over specific period(Hair et al., 2015). The mechanism is used in the process of capital budgeting in order to analyze the profitability of a particular investment or project. In the given case the npv may be used to make the decision of choosing between the two options of building a rehabilitation center or to build a neonatal wing, that gives the maximum profitability.
ROI : The return on investment measures the performance that helps in evaluating the efficiency of a project or investment. The ROI measures the amount of return that is related to the cost of investment (Grant, 2016). In order to calculate the ROI the return is divided by the investment cost. In the present case, the result is denoted in terms of ratio or percentage. The percentage of ROI, in the present case may help in the choice making of the two options of the project that would give more return to the origination.
PI: The profitability index refers to the index that helps in identifying the link between the benefits and cost of a project that is proposed or investment. In case of the profitability index, it helps in comparing the desirability of projects (Hox, Moerbeek & Van de Schoot, 2017). It is vital to consider that the technique that disregards size of the investment or project. Hence, projects that consist of larger inflows of cash may product in low calculations of profitability index since their return margins are not as high. Similarly, this index may be used to make the choice between the two projects as to which of the two yields more.
Case mix: The index of case mix refers to the relative value allotted to a diagnosis-related patients group in a medical care environment (Cappel & Huang, 2018). The CMI value is used in the determination of the resources allocation to care for or treat the patients in the group. Since the projects are related to health care business the case mix or payer mix can be used a tool to make the choice of a building a rehabilitation center or building a neonatal wing for the development of the business.
References
Cappel, J. J., & Huang, Z. (2018). THE ALIGNMENT OF PROFESSIONAL BUSINESS ANALYSIS TECHNIQUES WITH SA&D SOURCES: RESEARCH RESULTS. Journal of Business and Behavioral Sciences, 30(1), 4-13.
Grant, D. (2016). Business analysis techniques in business reengineering. Business Process Management Journal, 22(1), 75-88.
Hair Jr, J. F., Wolfinbarger, M., Money, A. H., Samouel, P., & Page, M. J. (2015). Essentials of business research methods. Routledge.
Hox, J. J., Moerbeek, M., & Van de Schoot, R. (2017). Multilevel analysis: Techniques and applications. Routledge.
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