# Case Study: Beverly Enterprises Owns A Nursing Home

654 Words 3 Pages
Register to read the introduction… Significant new investments should be made only if the return based on replacement cost is greater than the firm’s cost of capital. So, what cash flow, when divided \$100,000, gives 6%.
A. \$4,800
B. \$6,000
C. \$6,600
D. \$8,000

6. Beverly Enterprises owns a nursing home that is currently earning \$2.0 million in cash flow on an annual basis, but this amount is expected to drop in the future. The nursing home has a book value of \$20 million, a replacement cost of \$40 million, and a current sale value of \$10 million. If Beverly Enterprises has a cost of capital equal to 15 percent, at what value of annual cash flow would Beverly Enterprises be likely to sell the nursing home?
A. \$1,500,000
B. \$2,000,000
C. \$4,000,000
Numeric Problems (4 @ 6 = 24)

For the following four problems, start with the price-setting example from the text. The initial assumptions are provided in the table below.

Total cost \$100,000
Total volume 1,000
Average cost \$100 Payer volumes
Medicare (payment rate = \$95) 400
Medicaid (payment rate = \$75) 100
Managed Care # 1 (payment rate = \$110) 300
Managed Care # 2 (pay 80% of charges) 100
Uninsured (pay 10% of charges)