The St. Xavier Healing Touch Hospital Harvard Case Solution & Analysis

The St. Xavier Healing Touch Hospital Case Study Solution 

Question 3: Capital Budgeting

1. See Appendix 1.
2. After computing the net present value of three proposals; two of the proposals are indicating towards positive net present value. Proposal Gamma and Proposal beta are indicating towards positive Net present value of $1.26 million and $1.18 million, respectively. Therefore, the hospital should consider first the proposal gamma due to the high net present value. In addition to this, the IRR indicates that the higher IRR relates to the proposal beta.
3. The hospital would be required to proceed with proposal gamma and proposal beta as those are positive NPV projects. The Hospital should neglect the proposal alpha due to its negative NPV. The additional funds required to proceed with proposal gamma and beta are 501,000, which could be financed through loan from bank.
4. Previously, the NPV generated by the proposal alpha was negative $5 million, and after consideration of additional risk predicted by the director; the net present value is expected to get worst and to reach to negative $7 million. The additional risk is considered in the discount factor, and the discount factor increases subsequently with the risk predicted by the director. The recommendation will not be changed due to the additional risk consideration.

Question 4: Balance Sheet:

1. A. The pension fund liability is not considered by the hospital, as the hospital has not taken any guarantee or commitment to pay the financial obligation; therefore the liability should be ignored by the hospital. However, the case liability should be accounted in the financial position of the hospital, as the probability of losing the case is very high for the hospital. Therefore, around $2 million liability should be recorded by the hospital. Whereas, the loss on inventory and loss on mortgages indicate to the liability of 1 million and 0.8 million, respectively.
2. The liabilities will increase the costs for the hospital and the additional costs will reduce the company’s cash position; whereas, the reduced cash position will reduce the investment ability of the hospital in profit generating projects. The loss on case can heavily affect the company’s cash flow position and the reduction of power to invest in positive NPV project, such as: proposal gamma.
3. The asset position of the hospital indicates that the hospital provided heavy credit to its related parties. Around 24% of the total assets are related to the account receivable, which are not in the hospital’s favor, and in addition the hospital can invest those assets in long term value generating projects, such as: proposal beta. On the liability side, it has been determined that the hospital is using heavy short term finance for the running financial commitments, which is the expensive source of finance. The director could replace the short term financing with long term and less costly finance, in order to enhance the hospital’s value.

Question 4: Balance Scorecard:

1. The financial measure could be higher gross and net profit margins, and in addition the hospital could take return on investment ratio as a financial measure. Whereas,the customers’ objective is to increase their confidence over the hospital, which is likely to be effective. Learning and growth are the objectives of the enhancement of employees’ morale and motivation, while the target should be based on the average employee turnover percentage.
2. New customers can be acquired by the hospital through evaluating other possible alternative, which would increase the customer satisfaction level, helping in attracting the new customer base, which would result in higher value for the hospital. Long term relationship building with the customer would further enhance the customers’ confidence.............
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