Written Discussion - Write a relevant 250 word response to the following questio

Question

Written Discussion - Write a relevant 250 word response to the following question. 250 words is about 1/2 page single spaced. Brevard County Hospital is a not-for-profit (NFP) general care institution with the primary function to provide patient services both diagnostic and therapeutic, for a variety of medical conditions.   Brevard County Hospital also provides diagnostic x-ray services with facilities and staff for a variety of procedures. Brevard County Hospital also has clinical laboratory services with facilities and anatomical pathology services. In addition, Brevard County Hospital provides operating room services with facilities and staff.  You are the Chief Financial Officer (CFO) and need to make two important decisions on whether or not to purchase a positron emission tomography (PET) scan. A PET scan is an instrument that will allows doctors to observe how well internal organs are functioning. The machine has a price tag of $1,500,000.   The first decision you will need to make is how you might raise the capital necessary

Explanation / Answer

As it is not-for-profit general care institution with the primary function to provide patient services both diagnostic and therapeutic, for a variety of medical conditions ,the institution can raise public donations buy making the public knowing about the requirement of money and the purpose for which it is needed... It can even take help of Government or it can borrow from bank.The capitalisation rate which the institution will make will be its purchase price.As this PET machine will provide benefit in future also so it will be an asset for the institution, so the price must be depreciated i.e, 1500000 must be depreciated using straight line method over its useful life.If the institution borrows loan,then he will be liable to pay interest in the current accounting period for borrowing funds. Interest may be paid monthly ,half yearly,yearly as per terms and conditions.But there are different kinds of risk associated with this.these are interest rate risk, objective risk, subjective risk.

Interest rate risk is the risk which is associated with interest rate fluctuations.

Objective risk exists when financial managers can anticipate,with reasonable confidence, the expected range of revenue and cost variation. Subjective risk exists when financial managers cannot accurately predict the range of revenue and cost variation. Providers moving from a prospective payment system to a captivated system will find that objective financial risk potentially is reduced.

However, subjective financial risk under capitation can be significant.

so, institution must see all the prons and conns associated with the borrowing decisin and then decide which one to prefer.

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