Based on the financial statements and comparative market figures the following can be opportunities and threats can be identified regard to the merger of Mount Olive and Avalon General Case. Opportunities As health care provider all three health care providers have opportunity of having beds per people more than the national average of 3. Mount Olive has advantage of having patients based from local five counties. Avalon is owned by the Citrus health which has numerous plans including HMO, PPS, Medicare and Medicaid.
The member includes 500,000 from the 31 Florida counties. Avalon has the other advantage of having state-of-the art heart care center, modern maternity center, full service emergency department and medical emergency helicopter. By merging with the Avalon the Mount-Olive has access to these facilities and in long term in increase the revenues. Other advantage to Mount-Olive is access to medical plans of Avalon and its patient’s base over 31 counties including cosmopolitan areas. The Mount-Oliver can utilize these resources offering more services and increasing the revenues.
In long term the by mergerig both companies have large resources of physicians , plant and facilities will enable the company to become market leader by having larger share in the health care
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The merger will impact the cash flow of Mount Olive hospital and the company has to consider that how this cash outflow can be financed. The threat is the operating expenses of both Avalon and Mount Olive are having gone up in last five year. Depreciation has contributed more on this. Next five years these operating expenses going to be challenging to merged hospitals. The average age of plant is 6. 8 year to Avalon compare to 8. 5 year of Mount-Olive. This will increase the operational expenses of Avalon. The forecasted average risk premium is 6%. and the interest rate going to be within 3. 9 to 5. 1.
The Mount-Olive considering going for the merger is has to consider the risk factors. How much does it going to cost to Mount-Olive when going for merger. Is it worth investing to Avalon or investing in some other activities? The cash flow of Avalon is a serious threat. Its cash to current asset is below 1%. The industry average ratio is 5%. When going for merger the Mount-Oliver has to consider cash flow. To finance the cash flow of Avalon the Mount-Olive has to spend more in financing and eventually it will result to the increase in operating expenses.