case 1 Essay

1504 Words May 9th, 2015 7 Pages
Case Study #1: Green Valley Medical
AEM 4570: Advanced Corporate Finance
Name: Di Hu
Net ID: dh583

1. What are the key elements of Green Valley’s strategy?
a. What kind of hospital is it, and how does that relate to their overall strategy?

Green Valley Medical Center is a nonprofit teaching hospital comprising of 330 beds affiliated with a large state
university in a mid­size town located several hours from the state’s two urban centers. It was the only regional
hospital, and one of only two in the state, with facilities in cardiology, oncology, and neurology, specialised in
teaching, research and clinical care. Moreover, Green Valley had issued municipal revenue bonds on several
occasions to finance large exp
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The current capital budgeting system is a priority assessment. First, individuals submitted requests to their
department head if the costing was $1,000 or more, classified as new and replacement equipment costs, and under
$1,000 costs were classified as operating expense. Second, each department head ranked all requests referred to the
performance from last year, and deleted unnecessary requests. Third, the hospital’s fiscal affairs department
combined and prioritized along with the requests of all departments to form one master list after receiving the list and
Equipment Request Form from each department head. Finally, the Board of Trustees reviewed and approved the
master list at their November meeting.

b. What are the flaws to this system and the potential consequences of continuing with the existing capital
budgeting system?

The biggest flaw of existing capital budgeting system is rarely as objective. Although the financial
consequences of capital requests were taken into consideration, the financial data presented by the departments is
unreliable and often unfounded. In the decision making process, medical department produced resistance
continuously. Due to the lack of objective, the capital budgeting system was not aligned with the hospitals best
long­term interests. There was an unwritten policy that medical equipment had priority. However, there was no

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