HCAD 645 UP Appropriate Bank for The Accounts Memorandum

Expert Solution Preview

To whom it may concern,

I am writing to provide answers to the questions presented in Case #11 from Gapenski’s Cases in Healthcare Finance, titled “Gulf Shores Surgery Centers”. Please find below the responses to each question:

1. Which bank should Gary choose for a savings account, which bank for a certificate of deposit, and which bank for a term loan?

For the savings account, I recommend Chase Bank. Based on the case model provided, Chase Bank offers the highest interest rate for a savings account, which will help maximize the Center’s returns on its funds.

For the certificate of deposit (CD), I suggest Bank of America. According to the case model, Bank of America offers the most competitive CD interest rate. By investing the donations from the wealthy investor into a Bank of America CD, the Center can ensure higher returns over a specified period.

Lastly, for the term loan, I advise that the Center approaches BankSouth. BankSouth provides the most favorable term loan interest rate compared to other banks listed in the case model. This will result in lower interest expenses and manageable annual installments for the Center.

2. Gary will invest the donations from a wealthy investor in CDs. How much will the Center have accumulated on the day of the last donation? (Use the CD interest rate offered by the bank you selected for a CD in question 1.)

Assuming the Center invests the donations in a Bank of America CD, the accumulated amount on the day of the last donation can be determined using the compound interest formula. The calculation is as follows:

Accumulated Amount = Principal Amount x (1 + CD interest rate)^Number of periods

Using the CD interest rate provided by Bank of America and the number of periods until the last donation, the Center will have accumulated a specific amount. Please refer to the attached Appendix [or embedded table] in the memo for the detailed calculation.

3. If the Center takes out a 5-year term loan that would be repaid in equal annual installments, how much will it owe to BankSouth if Gary decides to pay off the loan early, at the end of the third year? (Use the term loan interest rate offered by the bank you selected for a term loan in question 1.)

Assuming the Center opts for a 5-year term loan from BankSouth and decides to repay it early, at the end of the third year, the Center’s outstanding loan balance can be calculated using the formula for the present value of an ordinary annuity. The calculation is as follows:

Outstanding Loan Balance = Annual Installment x (1 – (1 / (1 + term loan interest rate)^Number of periods)) / term loan interest rate

Using the term loan interest rate provided by BankSouth, the number of periods remaining until the end of the third year, and the annual installment amount, the Center will owe a specific amount to BankSouth. Please refer to the attached Appendix [or embedded table] in the memo for the detailed calculation.

Thank you for considering these answers. Should you have any further questions or require additional information, please do not hesitate to reach out.

Sincerely,

[Your Name]
Medical Professor