1. (10 Points) Eiffel Payne Hospital, a for profit hospital, wants to issue bonds for a major expansion. An investor, Terry Noirs, is in the 40% tax bracket and would be interested in the bonds. Tax Exempt hospital bonds of the same risk pay 6% interest. What is the minimum rate Eiffel Payne can set for Terry to invest in the bonds?
2. (30 Points) Intensive Care Urology Practice (ICUP), a not-for-profit business, had revenues in 2014 of $96,000. Expenses other than depreciation were 75% of revenues and Depreciation was $10,000. All revenues were collected in cash, and all expenses, excluding depreciation, were paid in cash during the year. No other assets were purchased, and no money was borrowed.
A. Construct ICUP’s Income Statement.
B. What was ICUP’s Cash Flow for the year?
C. If (under GAAP) PU changed its depreciation method so that the Depreciation Expense doubled, what would be the new Net Income?
D. Again, if (under GAAP) ICUP changed its depreciation method so that the Depreciation Expense tripled, what would be the Cash Flow?
E. Comment on the results.
3. (20 Points) The following are account balances on December 31, 2014 for Intensive Care Urology Practice (ICUP), (in alphabetical order):
Accounts Payable $45,000
Accounts Receivable, $60,000
Equity (January 1, 2014) $176,000
Expenses (includes taxes) $82,000
Long-term Debt $105,000
Long-term Investments $30,000
Net Property & Equipment $135,000