The three areas that were most familiar to me were the ...



Which three areas discussed in Chapter 5 are most familiar (or least challenging) to you?  Why?

The three areas that were most familiar to me were the return on equity (ROE), other measures of profitability and self sustainable growth. These are all terms that I have at least heard of before.

ROE is “the most comprehensive indicator of profitability because it is the final outcome of all the firm’s activities and decisions made during the year” (Hawawini and Viallet, 2011 p. 144). What I did not know are the five ratios that make up the ROE. The ratios make sense after I decipher the acronyms, though it is going to continue to take much practice in completing.

The second area of familiarity in chapter 5 has to do with the measures of profitability.  Hawawini and Viallet 2011, state the other measures profitability  are the  earnings per share (EPS), price to earning ratio (P/E) and the market to book ratio ( p.158-159). EPS is defined as earnings after tax divided by the number of outstanding shares. P/E is defined as the share price divided by the earnings per share and market-to-book ratio is defined as the share price divided by the earning per share ((Hawawini and Viallet, 2011 p. 167).

The third area that was more familiar to me was sustainable growth.” Without a sustainable level of profit a firm will not be able to finance their future growth” (p.162) therefore, firms can finance their growth in two ways either internally or externally (Hawawini and Viallet, 2011 p. 162). Self sustainable growth internally involves the retention of profits where as the external equity financing is through the issuing of shares and borrowing (p.162).

 

Hawawini, G., & Viallet, C. (2011). Finance for executives: Managing for value creation (4th ed.). Mason, OH: South-Western Cengage Learning.

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|RE: week 3 chapter 5 discussion questions |

|Carolyn [pic] |

|4/13/2013 3:05:20 PM |

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|Leslie, I agree the areas of profitability, particularly earnings per share (EPS) and price to earning ratio (P/E) are concepts we are more familiar |

|with and hence are somewhat easier to understand.  As you may be aware, the outpatient rehab department keeps a monthly stat sheet regarding our |

|procedures, visits, and new patients.  These statistics are then combined with the monthly financial data which provides us with our internal stats of |

|revenue per unit of service and revenue per visit.  Although the vast share of our expenses is to labor, the concept is the same as EPS and P/E.  |

| Similarly, we are held to targets with supply cost/ visit and labor cost/ visit.  After reading this chapter, I was pleased to be able to relate my |

|working experiences with the concepts presented here.  |

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|RE: week 3 chapter 5 discussion questions |

|Leslie Burgy [pic] |

|4/13/2013 5:23:45 PM |

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|Carolyn, |

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|I was aware that there is data collection that takes place in the outpatient setting but I was not aware of what specific data was being collected. The |

|nursing matrix looks at hours per patient day and a few other indicators but what may be similar would be the cost per unit of service that is on the |

|nursing roll up report. |

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|1. Which three concepts discussed in Chapter 6 are most unclear to you? Why? |

|The easiest concept to understand was that quote that was repeated over and over again in Hawawini and Viallet 2011, “an investment should be accepted |

|if its NPV is positive and rejected if its NPV is negative” (p. 189).  But what is more difficult to understand is the discounting concept.  I |

|understand that the present value is the same as the initial investment but why is the money discounted? Why would it not be the same or more? |

|The steps involved for applying the NPV rule from exhibit 6.17 were a little challenging. I think that practicing with excel will help to decrease the |

|anxiety related to calculations as well as finally memorizing some of the acronyms used. |

|Finally, the managerial options that are embedded into an investment project are somewhat unclear. The manager which I am assuming is a broad term for |

|executive has the power to either expand the project or to postpone or defer the project. How can the “options that are embedded into the project be |

|either worthless or have a positive value, and why would they be ignored in the standard NPV analysis?” (p.212-213).  |

|2. What are the differences between a single amount (lump sum) and an annuity? Please explain the differences through examples. |

|A lump sum is the total amount or payment due all at one time and an annuity is a repayment plan that is paid in equal periodic payments. A lump sum |

|would not have interest involved but an annuity most likely will have both principle and interest that need to be repaid.  An example of a lump sum |

|payment would be going to the store and buying your groceries. Everything is paid for before you leave unlike buying a new car. The borrower may or may |

|not have a down payment but the buyer will have equal monthly payments based on the price of the car and the interest rate applied to the loan. |

|Hawawini, G., & Viallet, C. (2011). Finance for executives: Managing for value creation (4th ed.). Mason, OH: South-Western Cengage Learning. |

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|RE: Discussion questions week 4- chapter 6 |

|Professor Dishman [pic] |

|4/20/2013 10:38:39 PM |

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|Hello Leslie, |

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|NPV is associated with uneven cash flows occurring at an equal interval. There is one tab in the Excel template that I emailed |

|to the class. |

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|State of the economy plays an important role in TVOM calculations. Here is the reason in a way that is easy to understand: |

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|- Interest rate is one of the key factors in determining PV, FV, PVA, FVA, and the PVP. |

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|- State of a nation's economy affects interest rate causing it to fluctuate. |

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|- In current economic climate, interest rate (Rate) used to determine PV, FV, PVA, FVA, and the PVP is very low, around 5% - 6%.|

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|- In the inflationary age of the 1970s, interest rate (Rate) used to determine PV, FV, PVA, FVA, and the PVP is very high, |

|around 15% - 20%. |

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|Based on Rule of 72, if you can earn 8% annually on your retirement investments, how long does it take for you to double your |

|initial investments? |

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|Thank you! |

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|Lihua |

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|RE: Discussion questions week 4- chapter 6 |

|Leslie Burgy [pic] |

|4/21/2013 1:38:38 PM |

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|First I had to investigate what the Rule of 72 is and here is the definition that I retrieved from Investopedia," an Internal |

|Revenue Service (IRS) rule that allows for penalty-free withdrawals from an IRA account. The rule requires that, in order for |

|the IRA owner to take penalty-free early withdrawals, he or she must take at least five "substantially equal periodic payments" |

|(SEPPs). The amount depends on the IRA owner's life expectancy calculated with various IRS-approved methods." Then I did more |

|research on SEPPs or the SEPP program, "you are required to distribute a fixed amount each year. As long as you distribute the |

|required total amount by the end of each year, you may take this amount on any frequency: monthly, quarterly or semi-annually" |

|(retrieved from Investopedia).  But that still does not answer the question that you proposed which is  if you earn 8% annually |

|on your retirement investments how long does it take to double your initial investment, so I reviewed the excel template titled |

|uneven cash flows, now I am more confused and I cannot determine the answer. Please advise where to look next. |

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|RE: Discussion questions week 4- chapter 6 |

|Carolyn [pic] |

|4/21/2013 7:18:48 PM |

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|Hi Leslie, |

|Prof. Lihua asked me a similar question in response to my initial post.  See my follow up reply for information regarding the |

|Rule of 72. |

|Carolyn |

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|RE: Discussion questions week 4- chapter 6 |

|Leslie Burgy [pic] |

|4/22/2013 1:26:49 PM |

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|Carolyn, |

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|Thank you for sharing your information with me. You posted" in the context of TVOM, the rule of 72 is an equation which provides|

|an approximation of the number of years needed to double your investment at a given interest rate.  The rule states; divide the |

|compound interest rate into 72 to obtain the number of years required.  For example, if the interest rate is 12%, it would take |

|approximately 6 years to double your investment.  72/12=6." This makes sense to me. I did retrieve my information from |

| as well but I did not obtain the same information as you can tell by my post. So the answer for my questions |

|would be 72/8=9, so if I did this right it would take 9 years if the interest rate is 8%. |

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|In connection with Chapter 14, how do you link globalization to leadership then to financial management in your profession? What|

|is the main impact of globalization on leadership decision making concerning financial matters? It is important for leaders to |

|be aware of globalization especially in healthcare, not only in regards to the direct impact that globalization has on the way |

|medicine is practiced around the world but the financial impact that occurs when patients travel abroad to get receive medical |

|treatment. |

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|There have been many articles regarding the increase of US citizens traveling to other countries to have elective |

|procedures/surgeries done because there is the perception that the patient can get the same level of care but at a less |

|expensive rate especially when the patient has to pay for the procedure out of their own pocket. According to the New York |

|Times, these patients are called "medical tourists" they are to young for Medicare and no longer covered under their former |

|employers insurance so these patients travel to other countries, pay for their medical treatment, sight see and stay in resorts |

|as they heal for much less than they would have to pay in the United States. "As many as 85000 people travel abroad each year |

|for different procedures and their costs are about 20% of what the cost would be stateside" (New York  Times, March 2009). |

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|Health systems need to be aware of these types of patients that are paying cash for procedures and figure out a way to keep |

|these procedures stateside as well as continue to decrease the costs of medical care. |

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|RE: week 9 discussion question 2 |

|Simonette |

|5/26/2013 12:15:07 AM |

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|What an interesting concept. It seems like a win-win situation for patients getting their procedures outside of the country and |

|relaxing by the poolside while recuperating. It is however, a big loss to the country, dollars migrating with the medical |

|tourists. We need to somehow think of a strategy that would counteract this process. Perhaps, making healthcare affordable to |

|cash-paying patients.  |

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|RE: week 9 discussion question 2 |

|Leslie Burgy [pic] |

|5/26/2013 12:45:45 PM |

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|You would think that you could give a discount to cash paying patients however; it is against the law from my understanding. All|

|people need to be charged the same prices and if they have insurance that negotiates a better price then great but all the |

|prices need to be the same. I understand the point but there could be some cash incentive. |

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