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Houston Community College *

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SOCIAL PSY

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Finance

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Feb 20, 2024

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docx

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2

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Explain why a non-profit hospital would use debt or equity financing. Non-profit hospitals may choose to use debt or equity financing for a variety of reasons. Depending on their objectives, financial status, and the state of the market, non-profit hospitals may choose debt financing because, in many cases, debt is more affordable than equity financing—especially if they have good credit. Debt financing typically involves fixed interest payments over a predetermined period, allowing for more predictable cash flow management. Taking on debt does not dilute ownership or control over the hospital. Interest payments on debt are typically tax deductible, providing a financial advantage to the hospital. Nonprofit hospitals can continue to be governed by their current structure without giving up control over decisions to outside investors. Since equity financing has less strict repayment terms than debt, it can enable the hospital expand and enhance operations. Equity investors frequently bring important networks, resources, and expertise to the table. The hospital has more freedom to manage its cash flow because dividend payments to shareholders are not subject to a set schedule. Explain why an investor-owned hospital would use debt or equity financing. Debt financing is preferred by investor-owned hospitals due to its tax benefits, leverage, and steady payments; equity financing, on the other hand, provides flexibility, risk sharing, capital access, and strategic alliances. The hospital's financial objectives, capital requirements, risk tolerance, and market conditions are some of the elements that influence the decision between debt and equity financing. Summarize how/why any hospital might use a combination of debt and equity financing. In order to meet capital demands, optimize capital structure, maximize tax benefits, control financial risk, improve financial flexibility, and seize expansion possibilities, hospitals employ a combination of debt and equity financing. Achieving strategic objectives and providing communities with high-quality healthcare services can be done by hospitals with a balanced strategy that nevertheless maintains a healthy financial position. "Access to financial capital is essential to any health care organization that would respond to changes in its community, acquire new technologies and replace old equipment, renovate or replace deteriorated facilities, offer new programs or new services, or make changes to improve productivity or enhance quality." (NationalAcademies 1986). Reference Institute of Medicine (US) Committee on Implications of For-Profit Enterprise in Health Care. (1986, January 1). Investor-owned Multihospital systems: A synthesis of research findings . For-Profit Enterprise in Health Care. https://www.ncbi.nlm.nih.gov/books/NBK217922/ Links to an external site.
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