Week 4 will cover the two foundation topics, time value analysis and financial risk and required return. The lectures in this unit will elaborate on the concepts necessary to perform value analysis and then discuss how to define and measure risks involved in financial decisions and make efficient financial decisions. This unit will also provide the tools required to understand financial risk and explain how to use those risks to calculate required returns.

Your Learning Objectives for the Week:

  • Develop, analyze, and draw conclusions from a healthcare organization’s (HCO’s) budget.
  • Analyze and recommend pricing and negotiation strategies under various models of reimbursement.
  • Demonstrate sound financial decision making in light of strategic, operational, and economic conditions.

MHC6305 Week 4 Discussion Instructions

 

Before beginning work on this discussion forum, please review the link “
Doing Discussion Questions Right
,” the expanded grading rubric for the forum, and any specific instructions for this topic.

Before the end of the unit, begin commenting on at least two of your classmates’ responses. You can ask technical questions or respond generally to the overall experience. Be objective, clear, and concise. Always use constructive language, even in criticism, to work toward the goal of positive progress. Submit your responses in the Discussion Area.

The 


capital asset pricing model


, or CAPM, is used to price an individual security or portfolio. The general idea behind CAPM is that investors should be compensated in two ways, for the time value of their money and risk incurred. The model helps investors calculate risks and what type of return they should expect on their investment. The time money value is represented by the risk-free rate, usually a 10-year government bond yield, and compensates the investors for placing money in an investment over a period of time. That is added to the other half of the formula which represents risk. It calculates the amount of compensation the investor needs for taking on additional risk. This is done by taking a Beta, which measures a stock’s volatility, and multiplies by its premium. The premium is calculated by subtracting the risk-free rate of return from the expected return of the market. For example, the expected return of a stock can be figured out in the following way using a model. If the risk-free rate is 3% the Beta or risk measure of the stock is 3 and the expected market return over the period is 11%. The stock is expected to return 27%. In short, if the expected return does not make the risk worth it, the investment should not be made.

Respond to the following questions:

· You are the chief financial officer (CFO) of a multi-physician clinic. Do you see weaknesses or strengths in the capital asset pricing model (CAPM)? Explain your response and support it with examples. Include a consideration of the small market line (SML).

· Your chief executive officer (CEO) asks you to decide between debt and equity financing. Explain which the best option is. Discuss the factors that influence your decision.

To support your work, use your course and textbook readings and also use the 

MHC6305 WEEK 4 LECTURE

Page | 1

Long-Term Debt Financing

When you buy a house, you examine financing plans offered by banks and loan companies. The terms include options such as repayment over fifteen to thirty years and adjustable or fixed interest rates and may include points for origination or to buy down the rate. There are a lot of categories of closing costs. There was probably a review of your credit worthiness to determine if you could reasonably be expected to make the repayments. This area was overlooked in the housing crisis that occurred in 2008. If you build a house, there are construction terms and inspections to release funds for the builder and materials, followed by a conversion to conventional finance. There is a requirement for a loan to value down payment so that you have significant “skin in the game” or commitment to the project. All of this is true when a business finances the purchase of major equipment or construction of new facilities. However, there is another step that shows that the expense is the best one that can be made among the available alternatives, that is, the projected return is the best and the risk is the lowest. A hospital may have to decide whether to buy a new Magnetic Resonance Imaging (MRI) machine or build a new emergency room (ER) wing. It must decide which alternative will offer the most bang for the buck—the highest return—and, if it fails, not cause great harm to the financial health of the organization. While this may seem fairly straightforward from a financial perspective, realize that other executives will also want to explore the competition and the projected future of the community in terms of health and growth. The community likely has an economic development agency that has much of the information needed such as projections of businesses or colleges coming to town.

 Long-term financing is one way of raising capital. A second way is through equity financing. Equity refers to ownership, which is raised by selling stock in your organization. In case of a nonprofit organization, donations from the community are similar to equity.

Equity Financing

Long-term financing is one way of raising capital. A second way is through equity financing. Equity refers to ownership, which is raised by selling stock in your organization. In case of a nonprofit organization, donations from the community are similar to equity. Equity financing has strings attached, but these are different from those of long-term debt financing. In debt financing, you must return the money over time; in equity financing, you must give up a portion of the ownership of the organization, maybe even a major part. This means that you have given up some of the say in the management of the organization. Instead of making interest payments, you will be expected to make dividend payments. That is, the new owner or the partial owner shares the

6/22/2021 Rubric Assessment – MHC6305-Financial Management of Healthcare Organizations SU01 – South University

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SUO Discussion Rubric (80 Points) – Version 1.2
Course: MHC6305-Financial Management of Healthcare Organizations SU01

/ 40

Response
No Submission
0 points

Emerging (F-D: 1-27)
27 points

Satisfactory (C: 28-31)
31 points

Proficient (B: 32-35)
35 points

Exemplary (A: 36-40)
40 points

Criterion Score

Quality of Initial

Posting

No initial posting exists to

evaluate.

The information provided is

inaccurate, not focused on

the assignment’s topic,

and/or does not answer the

question(s) fully. Response

demonstrates incomplete

understanding of the topic

and/or inadequate

preparation.

The information provided is

accurate, giving a basic

understanding of the topic(s)

covered. A basic

understanding is when you

are able to describe the

terms and concepts covered.

Despite this basic

understanding, initial posting

may not include complete

development of all aspects of

the assignment.

The information provided is

accurate, displaying a good

understanding of the topic(s)

covered. A good

understanding is when you

are able to explain the terms

and topics covered. Initial

posting demonstrates sincere

reflection and addresses

most aspects of the

assignment, although all

concepts may not be fully

developed.

The information provided is

accurate, providing an in-

depth, well thought-out

understanding of the topic(s)

covered. An in-depth

understanding provides an

analysis of the information,

synthesizing what is learned

from the course/assigned

readings.

/ 20

Participation
No Submission
0 points

Emerging (F-D: 1-13)
13 points

Satisfactory (C: 14-16)
16 points

Proficient (B: 17-18)
18 points

Exemplary (A: 19-20)
20 points

Criterion Score

Participation in

Discussion

No responses to other

classmates were posted in

this discussion forum.

May include one or more of

the following:

*Comments to only one other

student’s post.

*Comments are not

substantive, such as just one

line or saying, “Good job” or

“I agree.

*Comments are off topic.

Comments to two or more

cl

6/22/2021 Rubric Assessment – MHC6305-Financial Management of Healthcare Organizations SU01 – South University

https://myclasses.southuniversity.edu/d2l/lms/competencies/rubric/rubrics_assessment_results.d2l?ou=78100&evalObjectId=394547&evalObjectType=1&userId=4901&viewTypeId=3&rubricId=237556&… 1/2

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MHC6305 Week 4 Project Rubric
Course: MHC6305-Financial Management of Healthcare Organizations SU01

/ 15

Criteria
No Submission
0 points

Emerging (F through D
range) (1–10)
10 points

Satisfactory (C range)
(11)
11 points

Proficient (B range)
(12–13)
13 points

Exemplary (A range)
(14–15)
15 points

Criterion Score

Includes all

assignment

components and

meets graduate

level critical

thinking. A purpose

statement is

identified for the

response.

Student did not submit

assignment

Work minimally meets

assignment

expectations. No

purpose statement is

provided.

Assignment meets

some expectations with

minimal depth and

breath. Purpose

statement is vague.

Assignment meets

most of expectations

with all components

being addressed in

good depth and

breadth. Purpose

statement is present

and appropriate for the

assignment.

Assignment meets all

expectations with

exceptional depth and

breath. A

comprehensive

purpose statement

delineates all

requirements of the

assignment.

/ 15

Criteria
No Submission
0 points

Emerging (F through D
range) (1–10)
10 points

Satisfactory (C range)
(11)
11 points

Proficient (B range)
(12–13)
13 points

Exemplary (A range)
(14–15)
15 points

Criterion Score

Integrates and

understands

assignments

concepts and

topics.

Student did not submit

assignment.

Shows some degree of

understanding of

assignment concepts.

Demonstrates a clear

understanding of

assignment concepts.

Demonstrates the

ability to evaluate and

apply key assignment

concepts.

Demonstrates the

ability to evaluate,

apply and integrate key

assignment concepts.

Criteria
No Submission
0 points

Emerging (F through D
range) (1–10)
10 points

Satisfactory (C range)
(11)
11 points

Proficient (B range)
(12–13)
13 points

Exemplary (A range)
(14–15)
15 points

Criterion Score

6/22/2021 Rubric Assessment – MHC6305-Financial Management of Healthcare Organizations SU01 – South University

https://myclasses.southuniversity.