Kimberly Fahringer Chapters 9 And 10 Questions Create A Para

Kimberly Fahringer Chapter 9 And 10 Questions1create A Parable In

Create a parable (in the vein of Bastiat’s parable) that would help someone unfamiliar with finance understand the following concepts: opportunity cost concept, Be sure to address a concept other than opportunity cost. This may include compounding, discounting, annuity payments and perpetuity.

Analyze the steps involved in time value analysis to determine the challenges to health care organizations making financial decisions, as well as possible steps they could take to address those challenges.

Briefly describe a healthcare organization with which you are familiar (local hospital such as St. Ann’s Westerville, OH, dentist office or family practice) and how that organization could apply concepts of diversifiable risks, portfolio risk, corporate risk, market risk, market beta, stand alone risk, and capital asset pricing model. Provide specific examples to support your response.

For the same organization discuss which type of risk would be most relevant (stand alone, corporate or market). Explain your rationale.

Paper For Above instruction

The intricate landscape of healthcare finance often seems daunting to those unfamiliar with its principles. To bridge this understanding, a parable rooted in economic concepts can be highly effective. Imagine a small village where farmers have the choice between planting wheat or corn each season. The farmers' decision involves opportunity cost—choosing to plant wheat means they forgo the potential profits from corn, and vice versa. This simple decision illustrates the opportunity cost concept, emphasizing that selecting one option involves sacrificing the benefits of the next best alternative.

Extending this analogy, consider the concept of compounding—how investments grow over time—in our farm example. Suppose the farmers decide to reinvest profits for future planting; the growth of their savings accelerates due to interest compounding, much like the exponential increase in investments over time. Discounting becomes relevant when considering future profits—farmers may value future yields less today, representing the time value of money. Annuity payments could mirror annual subsidies or fixed income from crop sales, while perpetuities resemble ongoing income streams from land leases that generate perpetual income.

In the context of healthcare organizations, financial decision-making involves navigating several complex steps. First, assessing the cash flows associated with various projects or investments is essential. Then, applying discount rates reflects the time value of money, influencing whether a project’s future benefits outweigh costs. Challenges include estimating accurate cash flows amid uncertainty, selecting appropriate discount rates that reflect the risk profile, and balancing short-term operational needs against long-term strategic goals. Healthcare administrators can address these challenges through rigorous data analysis, scenario planning, and adopting flexible financial models that incorporate risk assessments.

A specific healthcare organization, such as a community hospital, can utilize concepts like diversifiable risk—such as variability in patient admissions due to seasonal illnesses—and portfolio risk—diversifying services to mitigate revenue fluctuations. Corporate risk encompasses broader issues like regulatory changes or technological shifts impacting all hospital operations. Market risk relates to economic factors affecting the entire healthcare sector, such as inflation or policy reforms. Market beta would measure how sensitive the hospital’s revenues are relative to overall economic changes. For example, investing in technology might reduce diversifiable risks, while holding diversified service lines decreases portfolio risk, enabling the hospital to withstand specific market fluctuations. Applying the capital asset pricing model (CAPM) can aid in evaluating the expected return adjusted for these risks, guiding investment decisions.

Regarding the most relevant risk type for the hospital, corporate risk is likely predominant. This is because hospitals face internal and external risks—such as management decisions, regulatory environments, and technological advancements—that impact overall operations more significantly than purely market-based or isolated risks. Thus, managing corporate risk, through strategic planning and robust governance, becomes critical for sustainable success in healthcare.

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