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Exhibit 4.1 data:

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Sunnyvale’s debt ratio at the end of 2015 was total debt (liabilities) divided by total assets = $100,747,000 ÷ $154,815,000 = 0.65 = 65%. This ratio reveals that each dollar of assets was financed by 65 cents of debt and, by inference, 35 cents of equity. Sunnyvale’s debt ratio at the end of 2014 was $68,893,000 ÷ $115,101,000 = 0.60 = 60%. Thus, the clinic increased its proportional use of debt financing by 5 percentage points in one year. That information is important to Sunnyvale’s managers and creditors. (The consequences of increased debt utilization are discussed throughout this book, but primarily in Chapter 13.) Also, it should be clear that judgments about Sunnyvale’s capital structure could not be made easily without constructing the debt ratio and other ratios; interpreting the dollar values directly is just too difficult. 

1.The following are selected account balances for Warren Clinic as of December 31, 2015, in alphabetical order. Create Warren Clinic’s balance sheet. Accounts payable Accounts receivable, net Cash Equity Long-term debt Long-term investments Net property and equipment Other assets Other long-term liabilities. $ 20,000 60,000 30,000 230,000 120,000 100,000 150,000 40,000 10,000 

2.Consider the following balance sheet: BestCare HMO Balance Sheet June 30, 2015 (in thousands) 

Assets Current Assets: 

Cash, Net premiums receivable, Supplies, Total current assets, Net property and equipment, Total assets. $2,737 821 387 $3,945 5,924 $9,869

Liabilities and Net Assets:

Accounts payable—medical ser vices Accrued expenses Notes payable Total current liabilities Long-term debt Total liabilities Net assets—unrestricted (equity) Total liabilities and net assets. $2,145 929 382 $3,456 4,295 $7,751 2,118 $9,869

a. How does this balance sheet differ from the one presented in Exhibit 4.1 for Sunnyvale? 

b. What is BestCare’s net working capital for 2015? 

c. What is BestCare’s debt ratio? How does it compare with Sunnyvale’s debt ratio?

3.Consider this balance sheet: Green Valley Nursing Home, Inc. Balance Sheet December 31, 2015 


Current Assets, Cash, Short-term investments Net patient accounts receivable Supplies Total, current assets Property and equipment Less accumulated depreciation Net property and equipment, Total assets, 105,737 200,000 215,600 87,655 $ 608,992 $2,250,000 356,000 $1,894,000 $2,502,992

Liabilities and Shareholders’ Equity 

Current Liabilities: 

Accounts payable, Accrued expenses, Notes payable, Total current liabilities, Long-term debt, Total liabilities Shareholders’ Equity: Common stock, $10 par value Retained earnings, 

Total shareholders’ equity, Total liabilities and shareholders’ equity  $ 72,250 192,900 180,000 $ 445,150 1,700,000 $2,145,150 $ 100,000 257,842 $ 357,842 $2,502,992 

a. How does this balance sheet differ from the ones presented in Exhibit 4.1 and Problem 4.5

b. What is BestCare’s net working capital for 2015? 

c. What is BestCare’s debt ratio? How does it compare with Sunnyvale’s debt ratio?

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