Question

Your firm has $45.0 million invested in accounts receivable, which is 90 days of net revenues. If this value could be reduced to 50 days, what annual increase in income would your firm realize if the increase in cash could be invested at 7.5 percent? Use the following information to answer questions 2 and 3: You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below: Number of Budgeted Procedures 10,000 Budgeted Cost $400,000 Desired Profit $ 80,000 It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay on average $38.00 per procedure. Approximately 10 percent of the patients are cost payers. The remaining charge payers are summarized below: Payer Volume % Discount % Blue Cross 20 4 Unity 15 10 Kaiser 10 10 Self-Pay 5 40 50% Week 3 Assignment Image 2. If the forecasted volume increased to 12,000 procedures and budgeted costs increased to $440,000, while all other variables remained constant, what price should be established? 3. Assume that the only change in the original example data is that Blue Cross raises their discount to 20 percent. What price should be set?

Answer 1

The firm would realize an increase in income by reducing its accounts receivable to 50 days. The annual increase would be the interest earned from investing the increase in cash at 7.5 percent.

Step-by-step explanation:

To calculate the annual increase in income, we need to find the difference in the number of days of accounts receivable. Currently, the firm has 90 days of net revenues, and it wants to reduce it to 50 days. So, the reduction in days is 90 - 50 = 40 days. Assuming the firm has 365 days in a year, the firm would realize an increase in income for 40/365 of its net revenues.

The increase in income would be calculated as:

Income increase = (40/365) * $45.0 million

To find how much the firm would earn if the increase in cash is invested at 7.5 percent, we need to calculate the interest earned:

Interest earned = 7.5% * Income increase

Therefore, the annual increase in income would be the interest earned from investing the increase in cash at 7.5 percent.

Answer 2

Answer: approximately $5.7 million increase.

Explanation: If 50 days earns us a 0.075 return, then we can think of 50 days as t=1. Then 50 days = 45 x 0.075 1 return and 40 days = 45 x 0.075 = 5.6658 million