Accounting

MAHO Module 11 Notes / Case Study: Mountain Village Clinic
-The clinic will be meeting with a bank to discuss cash management services and the clinic’s line of credit
Line of Credit = short-term loan agreement that a institution (bank) agrees to lend a person or a business (typically lasts a year, in which terms are renegotiated)
-The bank charges a 4% interest rate which is compounded monthly (so the monthly rate is 4%/12 = 0.3333%) and the clinic gets a 2% interest rate for our savings account (so the monthly rate is 2%/12 = 0.1667%) and it is important to input these as the monthly rate in the file.
-The purpose of the case is to look at line of credit is needed as you analyze various scenarios, first you will look at the base (or expected) scenario, in which you will enter 100% in Cell 37 of the case study file. Then you will adjust and compare these numbers to 105% which is our best-case scenario and then adjust it to 95% for the worst-case scenario. I recommend you make copies of the “Model” sheet and create one for each of the three scenarios: 95%, 100% and 105% to make it easier.
-In these scenarios, you can adjust the billings collection data as well to match the scenario, for example, the best-case scenario might allow us to collect payments sooner while the worst-case scenario might result in us having more debt. The tip is here is ensure the percentages equal to 100% after adjusting it (for the Billings Collection Data %’s).
-You can also adjust the target and beginning cash balance to match your scenarios as well (Cell C47 and C48). For example: the best-case scenario might require a lower target cash balance while the worst-case scenario requires a higher cash balance.
-The term loan payment input (Cell E53) requires you to compute the payment for the loan (Hint: the periods and interest rates should be adjusted for the compounding periods).
-The credit line recommendation should be analyzed for both daily and monthly budgets for the three scenarios. After doing that, you will recommend a single credit line amount.
Remember, the case study will be graded based on your responses and your ability to tie in the numbers to your recommendations and logic.