Financial Management

Financial Management

Introduction

The report will analyze the given situation to make an effective decision relating to capital shortage, arranging funds for capital acquisition and capital expansion. The report will also provide logical reasoning of the decisions along with the benefits of the decision made in each scenario.



Phase I: Capital Shortage

The company witnessed capital shortage problems. There are two decisions which have been made to overcome the capital shortage problem. The first decision is cost cutting by decreasing the contracted agency staff. This decision will lead to saving expenses which incurring on the contracted agency staff. It has been seen that the organizations believe that if they reduce the number of staff then the revenues will also be reduced but this case is different because of two main factors. The first factor is that the skills of the contracted agency staff are much lower than the hospital staff so it can be said that the contribution of the contracted agency staff to company's revenues is not very high or significant. The lower skill level indicates the importance of their task and variety of tasks in their job. Therefore, it can be inferred that the output of the contracted agency staff is not highly important. The second factor is that the expenses that company is making on contracted agency staff is double than the expenses of the hospital staff. It indicates that the contracted agency staff is more costly than the hospital staff so if the hospital laid off contracted agency staff than the hospital will save more money. The above mention two factor shows that the contracted agency staff is not contributing to hospital revenues as much as the regular hospital staff used to contribute where cost of contracted agency staff is higher than the hospital staff which affects the revenues of hospitals. Therefore, the contracted agency staff must be reducing to save the expenses (Garcia et.al, 2007, pp. 168).

The loan option 1 is selected to overcome the problem of capital shortage which can solve the capital shortage problem of three months. The hospital is expected to receive huge payment of $ 2.3 million in next three months from its clients. These payments will solve the issue of capital shortage for next three months. Both of above mentioned facts indicates that the capital shortage problem for next six months will be resolved by using loan option 1.

Outcome

The outcome of cost cutting measure is saving of $ 811,249 by the end of first quarter which even exceeds target. It is a fact that the loan option 1 will be closed in next three months. However, the loan option 2 will not be closed in six months which provide impetus in obtain loan from option 1. The outcome of using loan option 1 is that it will be closed in three months along with fulfilling capital shortage needs.

Phase II: Funding Options for Equipment Acquisition

The refurbished high-speed CT scanner will be purchased rather than buying a new ...