Business Case Problem

for Managerial Economics & Accounting

Section: MBA OCC. SITE 2B1
Members:
Problem Case- Uy, Anthony James B. & Romero, Lordwell
Business Case No. 1- Alegre, Jovelyn A. & Villas, Neilfren
Business Case No. 2- Pondoc, Archie Val & Cabangal, Jaifreed
Business Case No. 3- Sison, Queenie T. & Patriarca, Cynthia
Business Case No. 4- Tambal, Carlos Jr P. & Tambal, Shalou Beth D.
Business Case No. 5- Cabado, Herminigilda G. & Paglicawan, Remelyn R.
 PROBLEM CASE
You are the CFO of ABC Company. Your Treasury Department provided
you with the following information as of June 2022:
Cash in Bank May 31 2022 50M
Operating Cash In Flow for the month of June 10M
Cash Outflow Before Loan Servicing 30M
Loan Amortization for the Month of June 30M
Credit Line with DBP 100M
Short Term Investment 40M

ABC Company needs to procure 20M worth of raw materials for July
requirements. As the CFO, how would you intend to fund the
procurement requirement of ABC?
 Beginning Balance for June 50M
operation
Net Income/Loss -
Cash Inflow 10M
Less: Cash Outflow -30M
Working Capital 30M
Loan Amortization -30M
Cash Balance 0

Commitments in settlement priority due to:

1. Avoid Interest
2. Maintain good credit standing which is important to any
business with line of credit

A Credit line is best for short term purchase however the

interest rate is much higher than a term loan.
 Business case no 1
• In January 2016, ABC Medical Center was granted by DEF Bank with a P500M Term Loan to finance the
construction of 10-Storey, 100 bed capacity Hospital Building. The loan will be paid within 10 yrs. with 3
years grace period on principal repayment. As post release requirement, the borrower was required to
increase its authorized capital from P50M to P250 M with a minimum paid up capital of P150M within two
years from date of loan approval. Cost overrun shall be shouldered by the Company.
• DEF Bank is the sole creditor bank of ABC Medical Center. The project is expected to be completed by
December 2018. However, due to various revisions made on the design of the proposed hospital, the project
was considerably delayed for two years. The target completion date was moved to Dec. 2020.The
stockholders of ABC Medical Center infused P100M additional funds as advances from stockholders to fund
the additional project cost due to revisions of the project design. The revisions, however, had greatly affected
the liquidity position of the Company as well as the stockholders.
• During the last quarter of 2018, ABC Medical Center received a SOA from DEF Bank reminding the Company
on the upcoming first Principal amortization for the term loans which will be due in March 2019. DEF Bank
also called the attention of ABC Medical Center on the delayed completion of the project which have still an
unavailed amount of P100M.
• The Board of ABC Medical Center immediately convene to discuss the strategic solutions to address the
Company’s upcoming loan amortization. As the CFO of the Company, what solution/s would you recommend
to the Board to maintain the good credit record of the Company and to enable the Company to still draw the
remaining amount of the loan?
 BUSINESS CASE NO.
1
•As the CFO of ABC Medical Center, we need to
recommend a series of strategic solutions to the
board in order to maintain the company's good
credit record and address the upcoming loan
amortization while ensuring that the remaining
amount of the loan can still be drawn.
The following are several recommendations:
1. Negotiate with DEF Bank
Initiate discussions with DEF Bank to renegotiate
the loan terms, given the project delays and the
impact of the design revisions. Explain the
reasons for the delay and seek their
understanding. They may be willing to extend the
grace period or revise the amortization schedule.
2. Cash Flow Management
Strengthen cash flow management by closely
monitoring cash inflows and outflows. Cut any
unnecessary expenditures and ensure efficient use
of funds.
3. Loan Restructuring
Request a loan restructuring that allows for a
longer grace period or smaller initial principal
payments. This can help alleviate immediate
financial stress.
4. Capital Injection
Seek additional capital injection from the
shareholders or explore the possibility of
external investors. This additional capital can
help meet the upcoming amortization and
cover any cost overruns
5. Loan Drawdown Timing
Consider drawing down the remaining
P100M of the loan strategically. It should be
timed to coincide with project milestones or
when the funds are absolutely necessary. This
can help reduce interest costs.
6. Asset Sales or Leasebacks
Explore the possibility of selling non-core assets or entering
into leaseback agreements to raise funds. This can provide an
immediate cash infusion.
7. Government Grants or Subsidies
Investigate the availability of any government grants or
subsidies for healthcare infrastructure projects. These can be
used to cover project costs.
8. Cost Control
Reevaluate the project's design and implementation to
identify cost-saving measures without compromising
the quality and functionality of the hospital.
9. Debt Refinancing
Consider refinancing the existing loan with a longer-
term loan from DEF Bank or other financial
institutions with more favorable terms.
10. Diversify Revenue Streams
Develop strategies to diversify revenue sources within
the hospital, such as expanding services, attracting more
patients, and exploring partnerships with other
healthcare providers.
11. Seek Professional Advice
Engage financial and legal advisors to guide the
company in negotiations with the bank and provide
recommendations on restructuring and compliance with
the terms.
12. Communication with Stakeholders
Maintain open and transparent communication with
shareholders, DEF Bank, and other stakeholders. Keep them
informed about the challenges and the steps being taken to
address them.

Ultimately, the goal is to strike a balance between fulfilling

financial obligations and completing the hospital project
successfully. By taking a multifaceted approach and
considering all available options, ABC Medical Center can
work towards maintaining a good credit record and
completing the project.
 Business case no. 2
• In January 2019, the President & CEO of DEF Bank received a letter from the Chairman of
the Board of ABC Medical Center requesting for the following:
1. restructuring on the term loans of the Company for a period of 12 years
with 2 years grace period on principal repayment citing as reason the delay on the
completion of the project, hence the project has not been generating revenue to fund the
loan amortization.
2. to provide the Company a7-year Term Loan 2 amounting P100 Million to finance
the procurement of Medical Equipment
•The Company also informed the Bank that the new target date of project completion
would be until December 2020.
• The President and CEO of DEF Bank referred to you the letter-request with a marginal
instruction to evaluate the request of ABC Medical Center and provide appropriate
recommendation.
• As the account officer of ABC Medical Center, what would you recommend?
Recommendations
• Thorough Assessment
Begin by conducting a thorough assessment of the ABC Medical
Center’s financial situation, the reasons for the project delay, and its
revenue generation potential once the project is completed. This
assessment will help you understand the company's needs and repayment
capacity.
• Collaborative Discussion
Engage in open and collaborative discussions with the ABC Medical
Center's management to understand their challenges, expectations, and
restructuring proposals. Encourage transparency and provide insights on
what might be feasible.
Recommendations
• Detailed Proposal
Work together with the ABC Medical Center to prepare a detailed
proposal for loan restructuring. This should include clear explanations of how
the restructuring will address the delay in project completion and the impact on
revenue generation. Also, outline the terms and conditions of the proposed new
loan.
• Financial Projections
Assist the ABC Medical Center in creating realistic financial projections
that demonstrate how they plan to meet their obligations under the
restructured term loans and the new Medical equipment procurement loan.
These projections should be based on a comprehensive analysis of future
revenue, costs, and cash flows.
Recommendations
• Collateral and Guarantees
Evaluate the ABC Medical Center's collateral and guarantees
offered to secure the loans. Assess whether they are sufficient to
mitigate risk and protect the DEF Bank's interests.
• Risk Mitigation
Identify potential risks associated with the loan restructuring and
the new loan and recommend risk mitigation strategies. This could
include adjusting interest rates or requesting additional guarantees.
Recommendations
• Legal and Regulatory Compliance
Ensure that the restructuring and new loan agreements comply
with all legal and regulatory requirements. Consult with legal experts if
necessary.
• Due Diligence
Conduct due diligence to verify the accuracy of the ABC Medical
Center's financial information and projections. This will help in making
informed decisions.
Recommendations
• Negotiation
Act as a mediator during negotiations between the ABC Medical
Center and the DEF Bank. Find a mutually beneficial agreement that
balances the ABC Medical Center's needs and the DEF Bank's risk
tolerance.
• Regular Monitoring
Once the loans are in place, establish a system for regular
monitoring and reporting to ensure that the ABC Medical Center is
adhering to the agreed-upon terms and is on track with its financial
projections.
 Business case no 3
In the December 2020 Board Meeting of ABC Medical Center, the CFO reported among others the following
pressing concerns relative to the Company’s Hospital project:
• That the completion of the Hospital project would again be delayed by another two years due to various
community quarantines imposed by IATF during the COVID-19 pandemic. The Hospital project is projected
to be completed by December 2022 and operational by the last quarter of 2023.
• The Company needs at least P30 Million working capital to fund the initial operation of the Hospital.
• That the entire loan will be amortized by the Company within the remaining term of 5 years, hence the
projected revenues to be generated from the hospital project would not suffice to service the loan
amortizations for the next three years.
•Questions:
• As the CFO of ABC Medical Center, what strategic solution would you recommend to the Board?
• On the part of the Bank, what could be the best solution that it can possibly implement?
• What are the lessons that we can draw from the given case?
As the CFO of ABC Medical Center, what strategic solution would you recommend to the
Board?
Strength Action Plan
• Strong leadership support
• Exploring alternative funding sources
• Access to necessary resources
and flexible payment terms
Weakness • Utilize the Bayanihan to Heal as One Act
• Lack of contingency plans for unforeseen (Republic Act No. 11469)
delays
• Apply for an additional 30 Million loan for
• Insufficient working capital
working capital
• Limited experience in managing projects
• Request for a restructure of the existing
during a pandemic
loan base on when the projected project
Opportunity completion date
• Partnerships with healthcare organizations to • Request to make advances to the
share resources stockholders in order to sustain the loan
• Potential government support or incentives amortization
to boost healthcare infrastructure
• Revising the project timeline,
Threats
• Changes in healthcare policies, or economic
implementing cost-saving measures
uncertainties arising from the pandemic • Establishing strategic partnerships
Bayanihan to Heal as One Act (Republic Act No. 11469)
• What is the Bayanihan to Heal as One Act (Republic Act 11469)?
• On 23 March 2020, President Rodrigo Duterte signed Republic Act 11469 or “Bayanihan to Heal as One Act” into law declaring a
national health emergency throughout the Philippines as a result of the COVID-19 situation. The law authorized the President to adopt
temporary emergency measures in order to respond to the crisis brought about by the pandemic.
• Based on the Implementing Rules and Regulations (IRR) of Section 4 (aa) of the Bayanihan Act, all covered institutions shall
implement a thirty (30) day grace period for all loans with principal and/or interest falling due within the Enhanced Community
Quarantine (ECQ) period without incurring interest on interest, penalties, fees and other charges. The initial thirty (30) day grace
period shall automatically be extended if the ECQ period is extended by the President pursuant to his emergency powers under the
Act.

• During the mandatory grace period, will my account incur interest on interest, penalties, fees, and charges?
• NO INTEREST ON INTEREST and NO PENALTIES, FEES AND CHARGES if you would not be able to pay the scheduled
loan amortization

• Will interest continue to accrue during the grace period? If yes, what are my payment options?
• Yes, INTEREST WILL CONTINUE TO ACCRUE during the mandatory grace period in accordance with Section 5.02 of the IRR
of the Bayanihan Act. The interest that will accrue during the mandatory grace period will be computed based on your outstanding
principal using the existing interest rate of your loan.
• The accrued interest may be paid either:
• one (1) time on your next due date, or
• may be spread out for the remaining term of the loan

To know more about the Bayanihan to Heal as One Act (Bayanihan Act), please visit this link:
https://www.officialgazette.gov.ph/downloads/2020/03mar/20200324-RA-11469-RRD.pdf.
https://www.bsp.gov.ph/Regulations/Issuances/2020/M042.pdf
 On the part of the Bank, what could be the
best solution that it can possibly implement?
2016 2018 2020
Loan 1
Purpose: To finance Loan Amount: 500 Million Loan Amount: 400 Million Loan Amount: 400 Million
the construction of Terms: Payable within 10 years with 3 Terms: Payable within 12 years with 2 Terms: Payable within 12 years with 2
100 bed hospital years grace period (end in 2019) year grace period (end in 2020) year grace period (end in 2020)
building Note: Restructure Suggest: Bayanihan to Heal as One Act
Requirement: Increase authorized (Republic Act No. 11469) and suggest
capital to 250 Million for another loan restructure
Loan 2
Purpose: To finance - Loan Amount: 100 Million Loan Amount: 100 Million
the procurement of Terms: Payable within 7 years Terms: Payable within 7 years
Medical Equipment

Loan 3
Purpose: Working - - Loan Amount: 30 Million
capital to fund the Terms: 18 mos
initial operation of Requirement: The hospital must be
the Hospital completed by December 2022
What are the lessons that we can draw
from the given case?
• The importance of being prepared and flexible while managing
unforeseen delays. It is essential for businesses to anticipate any
unexpected obstacles that may come up during a project.
• Allocating a budget buffer can help in mitigating the financial impact of
unforeseen delays and ensure a smoother project execution.
• Including contingency plans in project schedules can help in mitigating
risks and ensuring project timelines are not significantly compromised.
• Establishing an alternative source of income can provide a safety net
during uncertain times, allowing businesses to maintain financial
stability when faced with unexpected challenges
 Business case no 4
• In 2015 Maharlika Specialist and Medical Center (MSMC)was granted by DEF Bank with the following
Loans:
Term Loan 1 – P400 M to finance the construction of 100 bed hospital building payable in
10 years with 3 years grace period on principal repayment
Term Loan 2- P100 M to finance the acquisition of medical equipment payable in 7 years
Short term loan line – P30 M to augment the working capital requirement of MSMC
• The project was completed in 3 years as scheduled.
• During the height of the pandemic, the revenue streams of the hospital was severely affected that it
could no longer sustain the payment of its loan amortizations.
• The founders of the hospital already made advances to the Corporation in order to sustain the
operations of the hospital including its loan servicing.
• The outstanding balance of the loan as of May 2023 is P300M
• However, the census of the hospital remains very low at an average of 18 to 20%. The hospital’s cash
flow continues to bleed coupled by difficulty to collect its receivables from PhilHealth which has
reached P80M.
• As chairman of the Board, what solution would you recommend to ease the liquidity problem of the
Company?
• What strategic solution would you recommend to improve the census of the Hospital?
 Business case no 5
• The Provincial Government of Mediatrix requested a meeting with the representatives of DEF
Bank.
• During the meeting, the Governor informed the representatives of DEF Bank that they will secure
a loan from the Bank amounting 2.5 Billion to finance the construction of a government center
and acquisition of furniture and fixtures to be installed in the proposed government center.
• The Governor specifically requested that the loan be amortized for a period of 15 years with
three years grace period on principal repayment and the interest rate should not be more than
4% per annum and they would not take any rate higher than that.
• The prevailing market rate is between 6.0% to 6.25%% and the BSP RRR is 6.25%.
• The LGU is the biggest depositor of DEF Bank with an Average Deposit balance of P8.00 Billion.
Effective cost of fund is 0.25%
• As Manager of DEF Bank, will you propose for the requested loan despite the interest rate is
already below the prevailing market rate and floor rate? Please provide the rationale of your
decision.