Primary Health Care is one of Australia’s leading listed healthcare companies. P

Question

Primary Health Care is one of Australia’s leading listed healthcare companies. Primary is a service company to medical and allied health professionals. A broad range of medical and related services are offered in Primary’s network of medical centres and pathology centres across Australia. Primary is also a leading provider of healthcare technology solutions to medical practitioners, medical practices and hospitals. Primary’s market capitalisation currently runs at about $2,290.5 million, with a debt-to-equity ratio of approximately 1:3. The company’s CFO is currently recommending that the Board issue new debt worth 10% of the firm’s existing debt in order to repurchase shares for the same amount. He is advocating for a recapitalisation of the firm’s balance sheet in order to realise an increase in firm value by having a higher debt level. The debt issue will take the form of a 10- year corporate bond with a yearly coupon equal to the firm’s current cost of debt of 6.65%. Primary’s CFO has approached Frontier Economics for assistance in formulating a solid argument for the proposed increase in financial leverage. While there is a tax advantage associated with debt financing, the team at Frontier Economics are concerned with the more subtle considerations about personal taxes at the investor level that also need to be taken into account. The consulting team will therefore consider three different tax settings: • A world with no taxes • A world with corporate taxes only • A world with taxes paid on all levels Primary’s marginal corporate tax rate is 30%. Assume that the marginal personal tax rate on income from debt is 35% and that the marginal personal tax rate on income from equity is 28%. Question: On behalf of Frontier Economics, prepare a presentation and written brief for the board of directors of Primary Health Care, addressing the following requirements: 1. Calculate the effective tax advantage of using debt.

Explanation / Answer

Asset transformation by an FI involves purchasing primary assets and issuing secondary assets as a source of funds. The primary securities purchased by the FI often have maturity and liquidity characteristics that are different from the secondary securities issued by the FI. For example, a bank buys medium- to long-term bonds and makes medium-term loans with funds raised by issuing short-term deposits.

Primary Health Care has two exciting opportunities for motivated Area Managers to join their dynamic teams in Central Sydney, Northern Beaches and South Sydney.

In these pivotal roles, you'll be managing the efficient running of a number of medical centres, with the majority of your time focused on the people management and support of Practice Managers, employees and relevant issues. This will also include ensuring safe work practices and obligations for all personnel on site, including visitors as well as identifying, resolving or escalating any issues with the State Manager.

More specifically, some of your key duties will be:

To be successful in these roles you'll require relevant business management qualifications as well as significant experience within customer service, practice management and people management. With a background in the health industry, your mentoring experience is essential as you support and lead centre staff. This will involve coaching staff on desired behaviour and fostering an open communication style.

As a pivotal leadership position, you'll also need to be comfortable working autonomously as well as part of a large team of healthcare professionals.

Your skills in rostering and financial acumen are essential in order to meet budget targets, while your excellent organisational and time management skills are required to enable you to juggle competing priorities effectively. You'll also have the ability to confidently interact with stakeholders from all levels of the organisation,

In return for your hard work and dedication, you'll enjoy an attractive remuneration circa $60,000-$80,000 (commensurate with qualifications and experience) plus super and a great range of benefits!

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