Fargo Memorial Hospital has annual net patients service revenues of $14,400,000. It has two major third-payers, plus some of its patients are self-payer. The hospitals patients accounts manager estimates that 10% percent of the hospsitals paying patients its self payers pay on Day 30, 60 percent pay on Day 60 Payer A and 30% pay on Day 90 (payer B). Five perfect of total billing end up as the bad debt losses but that is not relevant for this problem
a). What is Fargo's average collection period?
b). What is the firm current receivables balance?
c). What would be the firm's new receivables balance if a newly proposed electronic claims system resulted in collecting from third party payers in 45 and 75 days instead of in 60 and 90 days?
d). Suppose the firm's annual cost of carrying receivables was 10%. If the electronic claims system costs $ 30,000 a year to lease and operate, should it be adopted? (Assume that the entire receivables balance has to be financed.