Perhaps equally, if not more damaging, are the indirect costs of financial distress. Some examples of indirect costs are Group of answer choices Loss of current customers Loss of business reputation All of the answers are correct. Management consumed in survival and not on a strategic direction

What are the direct costs and indirect costs of financial distress, from default that leads to bankruptcy? Explain in a well-stated description and discussion, not over a page in length.

St. Benedict Hospital has three primary revenue producingdepartments (Inpatient, Outpatient, Clinic) with the followingrevenue and cost projections. In order to better determine thedepartments’ overall true cost and profit margin, management wantsto allocate service department costs as overhead allocations tothese departments.
PROJECTED REVENUES AND COSTS PER DEPARTMENT

Revenues
Inpatient Services $18,500,000
Outpatient Services 32,000,000
Clinic Services 12,250,000
Total revenues $62,750,000

Direct Costs
Inpatient Services $8,250,000
Outpatient Services 16,500,000
Clinic Services 8,500,000
Total costs $33,250,000

Service Department Costs
Financial Services $4,000,000
Facilities 7,500,000
Housekeeping 5,600,000
Administration 8,500,000
Total overhead costs $25,600,000
Total Costs $58,850,000
Projected Profit $3,900,000

Management considered various cost drivers and made thedeterminiation to use the following as the most relevant for eachservice department:


Department Cost Driver
Financial Services Patient revenue
Facilities Square feet
Housekeeping Housekeeping hrs
Administration Salary dollars

Utlization information for allocations:
Cost Driver Inpatient Outpatient Clinic TotalUtilization
Square Feet 210,000 180,000 65,000 455,000
Housekeeping Hours 80,000 58,000 26,000 164,000
Salary Dollars $6,500,000 $12,500,000 $5,500,000 $24,500,000


Based upon this information, complete the following, filling ineach highlighted cell. Be sure to use formulas to show yourwork.


Use Exhibit 6.6 as a guideto complete this table and calculate theallocation rate.
Department Cost Pool Amount CostDriver Total Utilization AllocationRate
Financial Services
Facilities
Housekeeping
Administration

Use Exhibit 6.7 as a guide to complete the indirect costallocations to each patient service area.
Indirect Cost Allocations Inpatient Outpatient Clinic Total
Financial Services
Facilities
Housekeeping
General Administration
Total Indirect Costs

Using Exhibit 6.8 as a guide, complete the P&L projectionsbelow.
P&L
Revenue
Direct Costs
Indirect Costs
Total Costs
Profit using only Direct Costs
Profit margin % using Direct Costs only
Profit using Total Costs
Profit margin % using Total Costs

What are agency costs, and how are agency costs of financial distress different from agency benefits of leverage? Explain their impact on calculating the value of a firm with financial distress.