Question

Please answer the following Question in 300 word count Please answer in your own Count. if citing source please add reference at the end of question.

You are the chief financial officer (CFO) at a community hospital. One of the comments that has come back from patient surveys is the need for a commercial 24-hour pharmacy within the hospital. In this way, patients or their families will be able to fill prescriptions and begin taking ordered medication right away instead of waiting until the following day. The chief executive officer (CEO) wants you to create a proposal for the first 3 months of operation utilizing time value of money tools for the development of this new revenue-generating department. The following points must be covered in your proposal:

•How might current changes in federal, state, and local policies influence decisions to be made?

Answer 1

Proposal regarding commercial 24-hour pharmacy plan at community hospital.

By seeing the word commercial pharmacy it is defined as profit center.

Lets say if the same community hospital is having pharmacy store which is operating during office hours instead of 24/7 period. During emergency situations after office hours patients need to depends upon outside stores, which is opening threat to current pharma business to hospital.

To prepare 3 months operation data we need to consider past six months data related to occupancy rate of patients after business hours and amount of business taking place to outside pharma agencies. Later we need to prepare business models possibly either to extend current services or lease the same for outside pharma agency.

Possibility 1 - Extension of same services - Need to consider the marginal revenue generated while operating 24/7 store. Same time we need to look over additional cost such as salary to personnel, additional infrastructure if any. While considering marginal cost we should not consider fixed cost already incurred to the present business.

Another point we need to think about is compliance of various laws, rules and regulations presently in active mode. According to the scenario we need to consider while defining model to be choose.

Possibility 2 - Lease out - Instead of changing current system and struggling for compliance issue it is better to lease the pharma division to operate after business hours if we are benefiting more. Need to recover notional benefit that we are loosing by running pharma unit only at business hours.

While choosing the same need to apply present value factor to calculate the business value for both the options by using discounting model.

Example -

If by operating pharma for 24/7 additional benefit of Rs 1,00,000 after recovering all the cost such as salary, maintenance charges, etc. Assuming the same will repeat for coming three months then after discounting the same at Weighted Average cost of Capital @ 15% then business value will be Rs 1,00,000 multiplied by 2.9265 (PVAF for 3 months @ 15% i.e 1.0125% per month) equals to Rs 2,92,650 /-.

As per previous explanation, to opt lease model we need to charge minimum Rs 1,00,000 as lease rental charges. According to market conditions and availability of agencies its we need to take next step.

Assumptions - All the statutoary, legal, state and local policies complied i.e labor laws, competetion policies etc.

Please comment your doubt if anything else required.