The Working Capital Cycle and the Cost of Credit

Submit written responses to these questions.

In terms of cash flow, what are the stages of the working capital cycle?

Describe the two components of a working capital management strategy.

What are the two types of unsecured bank loans? Describe each.

In the hospital’s billing process, why is medical records a critical department?

Identify the alternatives for investing cash on a short-term basis, and discuss the general characteristics of each.

List three ways to measure accounts receivable performance.

Identify and define two methods to finance accounts receivable.

Compute the annual approximate interest cost of not taking a discount using the following scenarios. What conclusion can be drawn from the calculations?

2/10 net 20

2/10 net 30

2/10 net 40

2/10 net 50

2/10 net 60

9. On January 2, 20X1, City Hospital established a line of credit with First Union National Bank. The terms of the line of credit called for a $200,000 maximum loan with an interest of 11 percent. Then compensating balance requirement is 15 percent of the total line of credit (with no additional fees charged).

10. What is the effective interest rate for City Hospital if 50 percent of the total amount were used during the year?

11. How would the answer to part of a change if the additional fees were $500?

12. How would the answer to part of a change if the additional fees were $1,000?

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