MSL 660 Belhaven University High Health Benefit Costs Discussion & Response

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MSL 660

Belhaven University

MSL

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  • Prompt: Discuss the following statement: “Health care costs are out of control in the United States, and increasing conflicts between employers and employees are likely as employers try to reduce their health benefits costs.”
  • Requirements: 250 words minimum initial post, 100 words minimum reply

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Financial Analysis MBA/MSL 643 Hall #7 Part 1 Time Value of Money 2 Biblical Foundation Live right and you will eat from the life-giving tree. And if you act wisely, others will follow. PROVERBS 11:30 •Does “being” proceed “doing?” •Can anything great be achieved alone? Why or why not? 3 Key Concepts • Be able to compute: ▫ The future value of an investment made today ▫ The present value of cash to be received at some future date ▫ The return on an investment ▫ The number of periods that equates a present value future value given an interest rate ▫ The future value of multiple cash flows ▫ The present value of multiple cash flows and a • Be able to solve time value of money problems using: ▫ Formulas ▫ A financial calculator ▫ A spreadsheet • Understand how interest rates are quoted 4 Key Concepts continued • Be able to compute the future value of multiple cash flows • Be able to compute the present value of multiple cash flows • Understand how interest rates are quoted 5 Basic Definitions • Present Value (PV) ▫ The current value of future cash flows discounted at the appropriate discount rate ▫ Value at t=0 on a time line • Future Value (FV) ▫ The amount an investment is worth after one or more periods. ▫ “Later” money on a time line 6 Basic Definitions continued • Interest rate (r) ▫ Discount rate ▫ Cost of capital ▫ Opportunity cost of capital ▫ Required return ▫ Terminology depends on usage 7 Time Line of Cash Flows • Tick marks at ends of periods • Time 0 is today; • Time 1 is the end of Period 1 0 1 2 3 CF1 CF2 CF3 r% CF0 +CF = Cash INFLOW -CF = Cash OUTFLOW PMT = Constant CF 8 Future Value General Formula FV = PV(1 + r)t FV = future value PV = present value r = period interest rate, expressed as a decimal t = number of periods • Future value interest factor = (1 + r)t Note: “yx” key on your calculator 9 Example: Future Value Suppose you invest $100 for one year at 10% per year. What is the future value in one year? ▫ Interest = 100(.10) = 10 ▫ Value in one year = Principal + interest = 100 + 10 = 110 ▫ Future Value (FV) = 100(1 + .10) = 110 Suppose you leave the money in for another year. How much will you have two years from now? FV = 100(1.10)(1.10) = 100(1.10)2 = 121.00 10 Effects of Compounding • Simple interest ▫ Interest earned only on the original principal • Compound interest ▫ Interest earned on principal and on interest received ▫ “Interest on interest” – interest earned on reinvestment of previous interest payments • Consider the previous example ▫ FV w/simple interest = 100 + 10 + 10 = 120 ▫ FV w/compound interest =100(1.10)2 = 121.00 ▫ The extra 1.00 comes from the interest of .10(10) = 1.00 earned on the first interest payment 11 Texas Instruments BA – II Plus • • • • • FV = future value One of these MUST be negative PV= present value I / Y* = period interest rate (r) N = number of periods PMT = payment (but will equal 0 in our examples of lump sums) N I/Y PV PMT FV * I / Y= period interest rate (r) Interest is entered as a percent, not a decimal  5% interest = “5”, not “.05” 12 Example: FV of Lump Sum • Suppose you invest the $100 from the previous example for 5 years. How much would you have? • Formula Solution: FV=PV(1+r)t =100(1.10)5 =100(1.6105) =161.05 Calculator Keystrokes: 5, N; 10, I/Y; -100, PV; 0, PMT; CPT FV = 161.05 Excel Solution: =FV(Rate, Nper, Pmt, PV) =FV(.10, 5, 0,-100) = 161.05 NOTE: Rate = decimal 13 Present Value • The current value of future cash flows discounted at the appropriate discount rate • Value at t=0 on a time line • Answers the questions: ▫ How much do I have to invest today to have some amount in the future? ▫ What is the current value of an amount to be received in the future? • Present Value = the current value of an amount to be received in the future • Why is it worth less than face value? ▫ Opportunity cost ▫ Risk & Uncertainty Discount Rate = ƒ (time, risk) FV = PV(1 + r)t • Rearrange to solve for PV PV = FV / (1+r)t PV = FV(1+r)-t • “Discounting” = finding the present value of one or more future amounts. 14 What’s the PV of $100 due in 3 Years if r = 10%? • Finding PVs is discounting, and it’s the reverse of compounding. 0 10% 1 2 3 100 PV = ? Formula: PV = FV/(1+r)t = 100/(1.10)3 = $75.13 Calculator: 3, N; 10, I/Y; 0, PMT;100, FV; CPT PV = -75.13 Excel: =PV(.10,3,0,100) = -75.13 15 The Basic PV and FV Equation for a Lump Sum PV = FV / (1 + r)t There are four parts to this equation ▫ PV, FV, r and t ▫ Know any three, solve for the fourth • Be sure and remember the sign convention +CF = Cash INFLOW -CF = Cash OUTFLOW 16 Present Value and Future Value of a Lump Sum Recap 17 Future Value of a Series of Multiple Cash Flows • You think you will be able to deposit $4,000 at the end of each of the next three years in a bank account paying 8 percent interest. • You currently have $7,000 in the account. • How much will you have in 3 years? • How much in 4 years? • Find the value at year 3 of each cash flow and add them together. ▫ Year 0: FV = $7,000(1.08)3 = $ 8,817.98 ▫ Year 1: FV = $4,000(1.08)2 = $ 4,665.60 ▫ Year 2: FV = $4,000(1.08)1 = $ 4,320.00 ▫ Year 3: value = $ 4,000.00 ▫ Total value in 3 years = $21,803.58 • Value at year 4 = $21,803.58(1.08)= $23,547.87 18 Example: FV of a Series of Multiple CFs with a Timeline If you deposit $100 in one year, $200 in two years and $300 in three years, how much will you have in three years at 7 percent interest? TIMELINE 0 1 2 3 -$100.00 -$200.00 -$300.00 4 5 7% $300.00 200*(1.07) = $214.00 100*(1.07)^2 = $114.49 $628.49 Total interest = $628.49-600=28.49 * (1.07)^2 = $719.56 19 Example: FV of a Series of Multiple CFs Using Excel If you deposit $100 in one year, $200 in two years and $300 in three years, how much will you have in three years at 7 percent interest? Rate 7% Year Nper CF FV Function 1 2 -100 $114.49 =FV(0.07,2,0,-100) 2 1 -200 $214.00 =FV(0.07,1,0,-200) 3 0 -300 $300.00 =FV(0.07,0,0,-300) Total FV at Year 3 Total FV at Year 5 $628.49 $719.56 =(628.49)*(1.07)^2 20 Example: FV of a Series of Multiple CFs • Suppose you plan to deposit $100 into an account in one year and $300 into the account in three years. • How much will be in the account in five years if the interest rate is 8%? FV = $100(1.08)4 + $300(1.08)2 = $136.05 + $349.92 = $485.97 0 1 $100 2 3 $300 4 5 300*(1.08)2 = $349.92 100*(1.08)2 = $136.05 $485.97 21 PV of a Series of Multiple Cash Flows You are offered an investment that will pay  $200 in year 1,  $400 the next year,  $600 the following year, and  $800 at the end of the 4th year.  You can earn 12% on similar investments.  What is the most you should pay for this one? Find the PV of each cash flow and add them: Year 1 CF: $200 / (1.12)1 = $ 178.57 Year 2 CF: $400 / (1.12)2 = $ 318.88 Year 3 CF: $600 / (1.12)3 = $ 427.07 Year 4 CF: $800 / (1.12)4 = $ 508.41 Total PV = $1,432.93 22 Present Value of a Multiple Series of Cash Flows Timeline 0 1 2 3 4 Time (years) 178.57 200 318.88 = 1/(1.12)2 x 427.07 = 1/(1.12)3 x 508.41 = 1/(1.12)4 x 1,432.93 400 600 800 23 Multiple Uneven Cash Flows • Press the CF button • CF0 is displayed as 0.00 • Enter the Period 0 cash flow ▫ If an outflow, press +/- to change the sign • To enter the figure in the cash flow register, press ENTER. • Arrow down to C01. Enter a value, arrow F01 • down Repeat forto all cash flows, and in order.enter how many times C01 • To find NPV: (default is occurs ▫ Press NPV button and I appears on the screen 1). ▫ Enter the interest rate (in %), press ENTER and arrow down to display NPV. ▫ Press CPT 24 Example: Multiple Uneven Cash Flows CF Function on the Calculator • Suppose you are looking at the following possible cash flows: ▫ Year 1 CF = $100; ▫ Years 2 and 3 CFs = $200; ▫ Years 4 and 5 CFs = $300. Display You Enter ▫ The required discount rate is 7% • What is the value of the CFs at year 5? Press CF • What is the value of the CFs today? C00 0, ENTER, C01 F01 C02 F02 C03 F03 100, 1, 200, 2, 300, 2, Press NPV I 7 Press CPT NPV = 1432.93 ENTER, ENTER, ENTER, ENTER, ENTER, ENTER, ENTER, 25 Example continued Using Excel 26 Example: PV and FV of CFS Using the Timeline $ $ $ $ $ $ 874.12 213.90 228.87 163.26 174.69 93.46 PV 7% Period 0 1 2 3 4 5 CFs 0 100 200 200 300 300 FV = 300.00 $ 321.00 $ 228.98 $ 245.01 $ 131.08 $ $ 1,226.07 27 Annuities and Perpetuities • Annuity – finite series of equal payments that occur at regular intervals ▫ If the first payment occurs at the end of the period, it is called an ordinary annuity ▫ If the first payment occurs at the beginning of the period, it is called an annuity due • Perpetuity – infinite series of equal payments. • Perpetuity: PV = PMT / r 1   1  • Annuities: t   PV  PMT     (1  r )  r     (1  r ) t  1 FV  PMT   r   28 Setting Annuity and Time Value Parameters • The PMT key on the calculator is used for the equal payment • The sign convention still holds • Ordinary annuity versus Annuity due ▫ Switch your calculator between the two types (see below) ▫ If you see “BGN” in the display of your calculator, you have it set for an annuity due ▫ Most problems are ordinary annuities (END mode). • Set END for an ordinary annuity or BGN for an annuity due ▫ Press 2nd and then BGN ▫ This is a toggle switch. The default is END. ▫ To change to BEGIN, press 2nd and ENTER to go back and forth. ▫ Press 2nd and QUIT to exit. 29 Important Points to Remember • Interest rate and time period must match! ▫ Annual periods  annual rate ▫ Monthly periods  monthly rate • The Sign Convention ▫ Cash inflows are positive ▫ Cash outflows are negative • You want to receive $5,000 per month for the next 5 years. How much would you need to deposit today if you can earn .75% per month? Calculator 60, N 0.75, I/Y 5000, PMT 0, FV CPT PV = - Excel =PV(0.0075,60,5000,0) 30 PV and FV of Multiple CFs Recap 31 Interest Rates • Effective Annual Rate (EAR) ▫ The interest rate expressed as if it were compounded once per year. ▫ Used to compare two alternative investments with different compounding periods  APR  EAR  1  m   m 1 m = number of compounds per year • Annual Percentage Rate (APR) “Nominal” ▫ The annual rate quoted by law ▫ APR = periodic rate X number of periods per year ▫ Periodic rate = APR / periods per year 32 Example: Effective Annual Rate (EAR) • Which savings accounts should you choose: ▫ 5.25% with daily compounding. ▫ 5.30% with semiannual compounding. • First account:  EAR = (1 + .0525/365)365 – 1 = 5.39% • Second account:  EAR = (1 + .053/2)2 – 1 = 5.37% 33 Questions for Reflection & Study • What is the difference between simple interest and compound interest? • Suppose you have $500 to invest and you believe that you can earn 8% per year over the next 15 years. • How much would you have at the end of 15 years using compound interest? ▫ How much would you have using simple interest? • What is the relationship between present value and future value? • Suppose you need $15,000 in 3 years. If you can earn 6% annually, how much do you need to invest today?) • If you could invest the money at 8%, would you have to invest more or less than at 6%? How much? 34 Questions for Reflection & Study cont. • What is the relationship between present value and future value? • Suppose you need $15,000 in 3 years. If you can earn 6% annually, how much do you need to invest today? • If you could invest the money at 8%, would you have to invest more or less than at 6%? How much? • You are considering an investment that will pay you $1,000 in one year, $2,000 in two years and $3,000 in three years. • If you want to earn 10% on your money, how much would you be willing to pay? • You want to receive $5,000 per month in retirement. If you can earn .75% per month and you expect to need the income for 25 years, how much do you need to have in your account at retirement? • What is the difference between APR and EAR? 35 What next? • • • • Take the Hall Quiz Complete your detailed reading Answer the discussion questions Complete the writing assignments 36 References • Financial Statements and some additional information was provided by slides from Essentials of Corporate Finance, 7th edition (2011), by Ross, Westerfield and Jordon. 37 This concludes Hall 7 Part 1 1 Human Resource Management MSL660/MPA606 Hall 7 Part 2 I Have Rights Too! 2 Format for Hall session • • • • Introduction of the Hall Hall Topics Christian worldview applications Major points for the week’s learning 3 Topics we’ll cover • • • • • • • • • • • Employer & Employee Rights & Responsibilities Rights Affecting the Employment Relationship Managing Individual Employee & Employer Rights Issues Balancing Employer Security & Employee Rights HR Policies, Procedures, & Rules Employee Absenteeism Employee Discipline Unions & Their History in the U.S. U.S. Labor Laws The Unionization Process Collective Bargaining 4 Biblical Foundation: 1 John 2:1 5 Hall Objectives • What rights do employees & employers have • What are the rights that affect the employment relationship • How do organizations manage their rights & their employees’ rights • To get a good understanding of what HR policies, procedures, and rules are • To understand how employee absenteeism affects the organization • To understand how employers administer discipline • To understand unions, the different labor laws, and the unionization process 6 Questions or Topics for Reflection & Study • What is the difference between wrongful discharge & constructive discharge? • What are the steps in the progressive discipline approach? • What U.S. Labor Law established the National Labor Relations Board (NLRB)? • What is involved in the unionization process? 7 Employee & Employer Rights • Rights – Powers, privileges, or interests that belong by law, nature, or tradition. • Statutory rights – Rights based on laws or statutes passed by federal, state, or local governments. • Responsibilities – Obligations to perform certain tasks & duties. • Contractual rights – Rights based on a specific contract between an employer & an employee. 8 Employee & Employer Rights • Employer rights include: ▫ The right to keep trade secrets confidential ▫ The right to have employees bring business opportunities to the employer first before pursuing them elsewhere ▫ A common-law copyright for works & other documents prepared by employees for their employers 9 Rights Affecting the Employment Relationship • Employment-at-will (EAW) – Common-law doctrine stating that employers have the right to hire, fire, demote, or promote whomever they choose, unless there is a contract to the contrary. • Wrongful discharge – Termination of an individual’s employment for reasons that are illegal or improper. • Constructive discharge – Process of deliberately making conditions intolerable to get an employee to quit. 10 Rights Affecting the Employment Relationship • Just cause – Reasonable justification for taking employment-related action. • Due process – Requirement that the employer use a process to determine employee wrongdoing & that the employee have an opportunity to explain & defend his or her actions. 11 Managing Individual Employee & Employer Rights Issues • Right to privacy – An individual’s freedom from unauthorized & unreasonable intrusion into personal affairs. • Employee Medical Records ▫ Must be kept separate from general personnel files • Employees’ Free Speech • Monitoring Electronic Communications 12 Recommended Employer Actions Regarding Electronic Communications • Fig. 15-5 Source: Mathis & Jackson (2011), Human Resource Management (13th ed.), Mason, OH, Cengage Southwestern. 13 HR Policies, Procedures, & Rules • Policies – General guidelines that focus organizational actions. • Procedures – Customary methods of handling activities. • Rules – Specific guidelines that regulate & restrict the behavior of individuals. • Employee handbooks 14 Employee Absenteeism • Absenteeism – Any failure by an employee to report for work as scheduled or to stay at work when scheduled. ▫ Involuntary, voluntary • Ways to Control: ▫ ▫ ▫ ▫ ▫ Disciplinary approach Positive reinforcement Combination approach “No-fault” policy Paid-time-off (PTO) programs 15 Measuring Employee Absenteeism • Widely used formula for calculating absenteeism: # of person-days lost thru job absence during period -------------------------------------------------------------- x 100 (avg # of employees) X (# of workdays) 16 Employee Discipline • Discipline – Form of training that enforces organizational rules. ▫ Positive Discipline Approach ▫ Progressive Discipline Approach • Discharge – When an employee is removed from a job at an employer. 17 Progressive Discipline Approach • Fig. 15-9 Source: Mathis & Jackson (2011), Human Resource Management (13th ed.), Mason, OH, Cengage Southwestern. 18 Unions & Why Employees Unionize • Union – Formal association of workers that promotes the interests of its members through collective action. • Fig. 16-1 Source: Mathis & Jackson (2011), Human Resource Management (13th ed.), Mason, OH, Cengage Southwestern. 19 History of Unions in the U.S. • From 1945-1960, 30% of workforce • 2009 – 12.4% (7.9 million) of civilian workers, 7.4% private-sector • As early as 1794, shoemakers organized a union, picketed, & conducted strikes • Reasons for decline in membership ▫ Geographic changes ▫ Industrial changes ▫ Workforce changes 20 U.S. Labor Laws • Wagner Act (National Labor Relations Act) ▫ (Pro-union) Established the right of workers to organize unhampered by management through unfair labor practices (ULP, NLRB) • Taft-Hartley Act (Labor Management Relations Act) ▫ (Pro-management) Balanced the power between unions & management (National emergency strikes, right-to-work laws) • Landrum-Griffin Act (Labor Management Reporting & Disclosure Act) ▫ Monitors union conduct 21 The Unionization Process Fig. 16-6 Source: Mathis & Jackson (2011), Human Resource Management (13th ed.), Mason, OH, Cengage Southwestern. 22 Collective Bargaining Process • Preparation & Initial Demands • Continuing Negotiations ▫ Good Faith • Settlement & Contract Agreement ▫ Ratification (union members vote on agreement) • Bargaining Impasse ▫ Conciliation/mediation/arbitration • Strikes ▫ Work stoppage by employees • Lockouts ▫ Work stoppage by management 23 Questions or Topics for Review • What is the difference between wrongful discharge & constructive discharge? • What are the steps in the progressive discipline approach? • What U.S. Labor Law established the National Labor Relations Board (NLRB)? • What is involved in the unionization process? 24 What next? • • • • Take the Hall Quiz Complete your detailed reading Answer the discussion questions Complete the writing assignments 25 References • Mathis, Robert & Jackson, John. (2011) Human Resource Management (13th ed.) Mason, OH: Cengage Southwestern. 26 This concludes Hall 7 Part 2
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Running head: HEALTH BENEFIT COSTS

Health Benefit Costs

Name

Institution

1

HEALTH BENEFIT COSTS

2
Health Benefit Costs

The United States is experiencing inflation in health care costs. The increase in health
care costs is caused by the expenses and the inflation in household spending, which affects the
health benefits and insurance packages in employment schemes. The problem has left companies
shifting the health care costs to the employees. For example, the United States federa...


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