Construction of Healthcare for Aged

Question: Discuss about theConstruction of Healthcare for Aged. Answer: Conditions of Loan Finance The analysis from the projected cash flow statement shows that the project A is in a better position for getting its finance credit by the bank. It can be further observes that the capital requirement for project A is $ 5500000 while project B has a total capital requirement for project B is $ 6000000. Hence, it can be seen that project A has lesser amount of financial requirement, which is to be financed by the bank. It can be further stated that the Project A has an NPV of $7.5 m while project B is $6.63m, hence it can be stated that the project A has not only a lower amount for requirement of the capital but also it has a higher amount of net present value. In addition to this project, A is observed to have higher amount of cash flow activity which is more ideal for a healthcare industry. The better sensitivity analysis shows that the project A has a better scope of getting the credit from the bank (Zingales, 2015). The eligibility criteria for the Healthcare industries in the application process of the financing of the loan are shown below as follows: The healthcare industry should be related to Paramedical College, Medical Educational Institute or Dental College. The loan application process is also applicable in Nursing home The healthcare loan facility should consider financing the Diagnostic Centre, Pathology Lab Centre, Endoscopy Centre, Dialysis Centre, and IVF Centre. The Australian banks should also consider financing the Pharmaceutical Manufacturer, specialty clinics such as the dental clinics and the skin clinics In addition to the aforementioned conditions, the banks should also consider financing the health care facilities, which have a minimum experience of 3-5 years f or the continued occupancy in the present residence/ office. The facilities should be having a minimum experience of 3 years of the carry out the various types of the business process in the designated healthcare business. Furthermore, the healthcare industries should take into consideration the repayment records of accomplishment from the previous serving of the loan on the previous 12 months. The healthcare institutions should ensure that they do not default in the previous loan activities so that the loan process of the borrower or co-applicants is not void. The healthcare industries need to consider the following documentation process to ensure the financing of the securities: The health care facilities should submit their Balance Sheet for the last three years and should further consider the Profit Loss Account for all individual promoters. It is applicable for all the private as well as the public healthcare facilities. The documentation procedure should also include the bank statements for the individual promoters in the previous 12 months. This is applicable for the firms as well as public operated health care facilities. The facilities should further consider providing the copy of the memorandum, this is especially applicable for the private companies and the Partnership Firm should consider giving the Copy of Partnership Deed (Chapman et al., 2014). In addition to this, the companies should consider providing the various types of the documents related to know your customer (KYC). This document mainly considers the total land area of the facility, total number of branches, owners name and the associated partner of the healthcare center or healthcare institute. The bank should also consider tracking the records of previous loans or the present loans. The healthcare centers should further consider providing the necessary details of the funding requirement for the project reports. The documents can furthermore vary based on the funding requirement of the healthcare centers (Zingales, 2015). The lenders for the healthcare industry are responsible for presenting the opportunities for generating a good amount of the cash flow. As per the statement given by the CEO Healthcare Finance Group Dan Chapa, the healthcare industries has provided lot of potential in the lending activities and these activities are creating more demand for debt capital. In addition to this the borrowers are expected for the purpose for in the deployment of acquisition process for the significant financial requirement for the significant capital up front (Velamuri et al., 2013). In the recent times the lending activities has shown the increment in the lending activities through the Tenet Healthcare Corp, by issuing a total of $600 million in the last five years, with interest rates as low as 5 %. Equity Finance: Equity financing is the process by which the company raises funds to be used as capital for its business. The organization finances its business either by issuing the share or by using the debt that is borrowing by the business. A company can finance the operation and business using the debt and equity. The equity is contributed by the owner himself or from the several investors. The investors make the investment for seeking the gain which they earn in the form of dividends and the debt denotes the borrowing by the company that is made at the fixed rate or sometimes at flexible rates for a specified time period. The use of debt as a source of financing may take the form of sales of bonds or form of the loan (Brigham Houston, 2012). The ratio of debt to equity influences the lender in lending the amount of money for financing. A higher proportion of equity in the debt to equity ratio would make the lender confident in lending. If the equity to debt ratio is high, the industry would s eek the option of debt to equity and for the purpose of raising the additional funds, the business needs to increase the additional capital. The process of equity financing is governed by the regulation that is imposed by the securities authorities in the most jurisdictions. One of the important elements of the equity dynamics is the owner control and this is established when the proportion of equity investment is more than the debt. This is so because the business would have absolute control as the equity invested is more than the half (Arnold, 2014). For the project A, the industry would use the debt as well as equity to finance the business. The total amount of funds raised by issuance of the shares is $ 3000000. The total amount of funds raised from borrowing by the industry is $ 2500000. The weighted average cost of the project is 7.92%. The proportion of shares used for financing is more than the proportion used in raising the funds through borrowing. For the project B, the weighted cost of capital stands at 6.60%. The total amount of funds raised through the equity is $ 3000000 and the total amount of funds raised by borrowing is $3000000. The proportion of funds raised from borrowing and issuing shares is equal that is for the project B, their debt capital ratio for the industry is equal. This is so because the half the capital is raised through the issuing of shares and half the capital is raised through the borrowing of the capital. The proportion of capital raised by issuing of the shares is more in case of project A tha n in project B. In the first case that is for the project A, the equity debt ratio is higher as the proportion of equity used for the financing is more than the debt. This would guarantee the exercise of control in the industry. In the second case that is project B, the business makes equal use of debt and equity to finance the business. When the industry makes use of higher proportion of debt in its capital structure then the company is at the higher risk of exposing itself to making the defaults. The industry is relying mainly on the own contribution and is making the use of equity to finance its capital (Langabeer II Helton, 2015). Financial Risks: The financial risk is the major concern for every business and for the health care industry it is also the major concern. It arises if the organization does not have sufficient cash flow to fulfill its obligations. The financial risk is due to the movements in the market concerning the industry. Credit risk, market risk, operational risk and liquidity risk are some of the financial risks. The health care industry mainly operates in such an environment where the business risk is low. As the level of debt used for financing increases, the level of financial risk in the also increases. The use of debt in a greater proportion to finance the business increases the potential for financial distress. It also increases the variability to the return of the shareholders. Therefore, the capital structure decisions in the health care industry are needed to be considered carefully. If the business has higher proportion of debt in its capital structure then it has most chance that it would make def ault in its payment (Dorfman Cather, 2012). The projected net cash flow from operating activities for the project A is increasing year after year. The net cash flow from operating activities for the project B is also increasing and this shows that the cash generation in the future would be sufficient to meet the short term obligations of the health care industry. The net cash flow from investing activities for the year 2017 for both the projects is negative. The figure is also negative for the projected year 2020. The cash flow generated from the investing activities would be positive for the year 2021. The cash generated from the financing activities is negative for all the projected year except for the year 2017. The net cash flow generated is positive for all the projected year except 2020. This shows that the health care industry does not have the liquidity risk as the net cash generated is positive for most of the projected year. It does not have any risk for meeting the short term obligations (Belo Yang, 2016). The net present value for the project A is $ 7570000 and for the project B, the value of the project is $ 6000000. The value of net present value is positive for both the projects and this means that the assets are worth less than what is paid for. Since, both the projects have positive values, and then the project with the higher discounting rate should be accepted. The project B has higher discounting rate and it should be accepted. Here, the initial investment is different for both the project; in that case both the projects would be accepted. The project A and B is generating positive returns from investing in the projects and it is viable as the cash flow is positive and does not carries any liquidity risks. The internal rate of return for the project A is 40% and for project B is 29%. The project is desirable if the internal rate of return is higher and in this respect, the Project A is considered to be desirable. The rates of the internal rate of return are compared with the rates that are prevailing in the securities market. The internal rate of return is considered suitable to determine the investment to generate the net economic profits. If the internal rate of return is greater than the required rate of return then the project is accepted and if the internal rate of return is less than the required rate of return then the project is less desirable. If the rate of internal return is equal to the required rate of return, then the organization becomes indifferent (Kavaler Alexander, 2012). The profitability index makes the comparison on a relative basis and provided with the more accurate answer and it ranks the projects in terms of profitability. The profitability index for the project A is 1 and for the project B is 2.1051. Here, the profitability index for project is more than project B. The profitability index is positive for both the projects but the net present value of the project A is higher than that of project B. therefore, the health care industry does not have the risk that would arise with its process of capital budgeting. The general risk facing the healthcare industry is about the risk that the project is exposed to, that is the future cash generated is just an estimation of the analysis and the projection is the future returns and not the actual. Therefore, there is a risk associated with the inability of the business to generate the cash in the future and there might be the unanticipated emergencies that would not be lead to the cash generation and making the business stable (Warusawitharana Whited, 2015). From the above analysis and the interpretation of the financing done for the industry, it can be concluded that the business is not depending itself on the loan to finance its capital structure and equity financing is the preferred way of financing. This can be said that the company does not have the risk of making default as the proportion of the equity financing is more than the debt financing. 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