shouldice hospital harvard case study

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Shouldice Hospital: Standardized, Specialized Clinical Processes

standardized hernia surgery, the health care delivery model of the future?

“Every system is perfectly designed to get the results it gets” – Paul Batalden, MD

Hospitals are expected to deliver value in a variety of ways, including: 1) diagnosing and treating human disease, 2) educating practitioners, and 3) contributing to medical research. However, the first way of delivering value, often understood to be the primary purpose of hospitals—that of diagnosing and treating patients—is actually two business models grouped within the same operating unit. 1,4 If hospitals hope to be excellent in both diagnosing and treating patients, they must deconstruct these fundamentally different business models and match them with their own appropriate operating models. 1

One such hospital in Ontario, the Shouldice Hospital, has been particularly successful in aligning its business and operating models to treat hernias. 2,3 External abdominal hernias are protrusions of bowel through the abdominal wall due to weakening of abdominal wall tissues. The Shouldice Hospital’s mission is to be the world leader specifically for repairing abdominal wall hernias. 2

Shouldice’s operating model was designed very intentionally with the above business mission in mind. Both patient and clinician flow are standardized to maximize patient experience and outcomes, with complete process integration from pre-admission to patient discharge. 1,3,5 Patients are diagnosed either in-person or remotely and arrive in the hospital the afternoon prior to surgery. Upon arrival, patients meet with a series of individuals for a physical exam, a lab check, and a discussion of administrative issues. At fixed times, they then undergo an orientation to set expectations and then meet with patients who previously underwent surgery in order to ask questions. On the day of the operation, patients are awoken at a standard time and prepared for surgery. There are 5 operating rooms, which each surgeon performing many hundreds of hernia surgeries each year, a much higher volume than in traditional hospitals. After the procedure, patients themselves walk to the post-op area, and over the coming 3 days they are encouraged to exercise, eat, and explore the hospital premises and meet friends. In total, whereas hernia procedures often take 90 minutes, cost $4,000, and result in a 5-10% complication rate in more traditional hospital setting, procedures at Shouldice often take 30-45 minutes, cost 30% less, and have a complication rate of .5%. 1,3,5

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These efficiencies can be largely attributed to an integrated process flow and standardization. Not only is patient flow standardized, so are clinical duties. Surgeons are scheduled for 3-4 operations in the morning and spend the afternoon seeing patients for the next day. 1,3,5 Even the operation has been standardized to be almost robotic in fashion. Standardizing more mundane aspects of the procedure frees clinicians’ minds to focus on problem solving when the need arises, rather than having to think through routine best practices every time a procedure is done. Furthermore, when it comes to surgery, clinical experience is second to none on predicting success of outcomes. While all general surgeons nationwide are trained to perform hernia repairs, the experience and surgical volume of Shouldice surgeons is unprecedented.

Not only are processes and physician training aligned with the hospital’s mission, so is the hospital design itself. There are no televisions or phones in patient rooms, thus encouraging patient ambulation post-operatively, which has been shown to improve outcomes and decrease rates of deep vein thrombosis. 1,3,5 Many administrative staff members are cross-trained, allowing them to provide support to others when needed. 1,3,5 Even the compensation system, a salary system for the surgeons, helps align provider incentives to maximize patient care and not necessarily volume of procedures.

While Shouldice has made significant strides in aligning its operating and business models, it remains unclear whether such a standardized model of care delivery can be translated to other settings. Skeptics may argue that Shouldice patients are relatively healthy, not demanding care for a variety of medical comorbidities. However, certain centers, such as the Mayo Clinic, are already developing more specialized delivery models that focus on specific problem categories in an interdisciplinary fashion within the context of a larger medical center. 6 Skeptics also question process standardization and loss of physician autonomy. While a standardized process may be less appropriate for diagnostic roles in healthcare, numerous examples, including adoption of checklists in operating rooms and the Narayana Health cardiac model in India, demonstrate upsides of standardization. Standardization affords clinicians the opportunity to not have to constantly think about more basic tasks, freeing their attention to more problem-solving, creative tasks.

References:

• Christensen et. al. “Disrupting the Hospital Business Model” Forbes . 2009, Mar 31.
• http://www.shouldice.com/
• Gawande, Atul. Complications: A Surgeon’s Notes on an Imperfect Science
• Bohmer, Richard. Designing Care: Aligning the Nature and Management of Health Care
• Heskett, James. “Shouldice Hospital Limited.” HBS Case. 2003, June 2.
• Morgenthaler, Timothy & Charler Harper. “Getting Ride of ‘Never Events’ in Hospitals.” Harvard Business Review . 2015, Oct 20.

Student comments on Shouldice Hospital: Standardized, Specialized Clinical Processes

Interesting post! This highly standardized model of care reminds me of Aravind Eye Care System in India. This system is an extremely efficient “assembly line” model with high quality measures. The idea is to only use doctors for the actual surgery portion of cataract surgery (which takes about 5 minutes), and to have doctors perform an incredible large volume of cases so that they can become experts at the surgery and so that surgeon utilization is close to 100%.

The following quote in particular highlights this model: “Doctors are hard to find and expensive, so the surgical system is set up to get the most out of them. Patients are prepared before surgery and bandaged afterwards by Aravind-trained nurses. The operating room has two tables. The doctor performs a surgery — perhaps 5 minutes — on Table 1, sterilizes her hands and turns to Table 2. Meanwhile, a new patient is prepped on Table 1. Aravind doctors do more than 2,000 surgeries a year; the average at other Indian hospitals is around 300. As for quality, Aravind’s rate of surgical complications is half that of eye hospitals in Britain.” ( http://opinionator.blogs.nytimes.com/2013/01/16/in-india-leading-a-hospital-franchise-with-vision/?_r=0 )

And this highly efficient model has allowed them to be sustainable. They actually use the profits from the payments of patients who can pay to fund surgeries for individuals in poverty who can not afford eye surgery.

Now they are expanding into telemedicine to reach and diagnose patients in locations far from their hospitals and possibly bring those in need to their hospitals. The idea of standardization for increased efficiency and lower cost is an interesting one, and it is something that I believe will be explored more and more in the United States as we continue to focus on ways to reduce the cost burden of health care.

Eloquently said! Yeah, I think standardization has a huge role to play in improving health care efficiency in general in the future. I would love to speak more with surgeons who have actually worked in such hospitals though to get their take on the very high throughput and lack of variation in their day. While it makes for extremely well-practiced surgeons, I wonder if they feel that their careers become mundane at all without a greater variety in their case load.

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• Business Case Studies

Technology & Operations

Shouldice Hospital Ltd.

Shouldice Hospital Ltd. ^ 683068

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Publication Date: April 25, 1983

Source: Harvard Business School

The Inside the Case video that accompanies this case includes teaching tips and insight from the author (available to registered educators only). Various proposals are set forth for expanding the capacity of the hospital. In assessing them, serious consideration has to be given to the culture of the organization and the importance of preserving it in a service delivery system. In addition to issues of capacity and organizational analysis, describes a well-focused, well-managed medical service facility that may well point the way to future economies in the field.

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James L. Heskett

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Shouldice Hospital Ltd. – Case Solution

Different plans are proposed to increase Shouldice Hospital Ltd.'s capacity, but due consideration must be given to its culture. Other issues that need to be taken into account include capacity and organizational analysis, as well as creating a well-managed medical service facility for efficient operations in the future.

​James L. Heskett Harvard Business Review ( 683068-PDF-ENG ) April 25, 1983

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• How does Shouldice Hospital Ltd. compete? Identify at least three characteristics of Shouldice’s operations that contribute to its competitiveness.
• Compute the cycle time (time per patient) and weekly capacity (patients/week) for the Examination Room, Nurse’s Station, Operating Rooms, and Doctors.
• What was the average throughput rate (patients/week) of Shouldice Hospital?
• What is the maximum possible throughput rate of Shouldice Hospital?

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Introduction

Shouldice Hospital Ltd. is one of the world’s most reputed healthcare facilities located in Ontario, Canada.

The hospital was founded by Dr. Edward Earle Shouldice in the 1940s and specialized in the treatment of external abdominal hernias. It became world-renowned due to its unique way of treating patients.

Shouldice Hospital Ltd.’s Success

The following are the competitive advantages that Shouldice Hospital has over its competitors, which are also the foundation of its success:

Surgical Technique

The organization uses a unique surgical technique, founded by Dr. Edward Earle Shouldice, for the repair of hernia, due to which early ambulation and rapid recovery of the patient is possible. Another crucial feature of the technique was there was only a 1% recurrence rate on more than 300,000 hernia operations.

All the surgeons of the hospital are well experienced and are trained in the Shouldice Hospital Ltd. technique for hernia repair before they can start practicing.

Furthermore, the price for treatment is very reasonable, i.e., a patient who receives treatment at the hospital pays nearly half of the price he has to any other hospital. The above factors make this technique superior to any other technique offered by any other organization.

Patient’s Experience

Patients who received treatment at Shouldice Hospital are extremely impressed by the experience they have had in the said hospital. Most of them feel like they are on vacation in a country club rather than a hospital.

They have been provided positive counseling sessions by the nurses. As the rooms are semiprivate, they are grouped with other patients who have similar interests or backgrounds as them. They felt warm, relaxed, and welcomed at Shouldice Hospital Ltd.

Even after treatment, the hospital offers free annual checkups to its recovered patients and even organizes lavish annual meets for them, which is the cherry on the cake for the patients.

This customer satisfaction not only…

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Biography: Edward Earle Shouldice (1890–1965)

• Pioneers in Hernia Surgery
• Published: 12 September 2003
• Volume 7 , pages 172–177, ( 2003 )

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Bassini E (1887) Sulla cura radicale dell'ernia inguinale. Arch Soc It Chir 4:379–385

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Shouldice EE (1939) The use of fascia lata in the treatment of fallen metatarsal arches. Can Med Assoc J 41,112–115

Shouldice EE (1953) Obesity and ventral hernia repair. In: Modern Medicine of Canada. p 89

Ryan E, Brown F, Shouldice EE, Glassow F, Martin C (1959) Staphylococcic wound infection. A study of wound infection in several thousand hernia cases. JAMA 170:1274–1283

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Acknowlegements

I would like to acknowledge and thank Dr. Donald Welsh not only for his input and his recollections but also for sharing so many of his moments spent with Earle Shouldice.

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Bendavid, R. Biography: Edward Earle Shouldice (1890–1965). Hernia 7 , 172–177 (2003). https://doi.org/10.1007/s10029-003-0142-0

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Received : 17 March 2003

Accepted : 22 April 2003

Published : 12 September 2003

Issue Date : December 2003

DOI : https://doi.org/10.1007/s10029-003-0142-0

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• Harvard Case Studies

Shouldice Hospital Ltd Case Study Solution & Analysis

In most courses studied at Harvard Business schools, students are provided with a case study. Major HBR cases concerns on a whole industry, a whole organization or some part of organization; profitable or non-profitable organizations. Student’s role is to analyze the case and diagnose the situation, identify the problem and then give appropriate recommendations and steps to be taken.

To make a detailed case analysis, student should follow these steps:

STEP 1: Reading Up Harvard Case Study Method Guide:

Case study method guide is provided to students which determine the aspects of problem needed to be considered while analyzing a case study. It is very important to have a thorough reading and understanding of guidelines provided. However, poor guide reading will lead to misunderstanding of case and failure of analyses. It is recommended to read guidelines before and after reading the case to understand what is asked and how the questions are to be answered. Therefore, in-depth understanding f case guidelines is very important.

Harvard Case Study Solutions

STEP 2: Reading The Shouldice Hospital Ltd Harvard Case Study:

To have a complete understanding of the case, one should focus on case reading. It is said that case should be read two times. Initially, fast reading without taking notes and underlines should be done. Initial reading is to get a rough idea of what information is provided for the analyses. Then, a very careful reading should be done at second time reading of the case. This time, highlighting the important point and mark the necessary information provided in the case. In addition, the quantitative data in case, and its relations with other quantitative or qualitative variables should be given more importance. Also, manipulating different data and combining with other information available will give a new insight. However, all of the information provided is not reliable and relevant.

When having a fast reading, following points should be noted:

• Nature of organization
• Nature if industry in which organization operates.
• External environment that is effecting organization
• Problems being faced by management
• Identification of communication strategies.
• Any relevant strategy that can be added.
• Control and out-of-control situations.

When reading the case for second time, following points should be considered:

• Decisions needed to be made and the responsible Person to make decision.
• Objectives of the organization and key players in this case.
• The compatibility of objectives. if not, their reconciliations and necessary redefinition.
• Sources and constraints of organization from meeting its objectives.

After reading the case and guidelines thoroughly, reader should go forward and start the analyses of the case.

STEP 3: Doing The Case Analysis Of Shouldice Hospital Ltd:

To make an appropriate case analyses, firstly, reader should mark the important problems that are happening in the organization. There may be multiple problems that can be faced by any organization. Secondly, after identifying problems in the company, identify the most concerned and important problem that needed to be focused.

Firstly, the introduction is written. After having a clear idea of what is defined in the case, we deliver it to the reader. It is better to start the introduction from any historical or social context. The challenging diagnosis for Shouldice Hospital Ltd and the management of information is needed to be provided. However, introduction should not be longer than 6-7 lines in a paragraph. As the most important objective is to convey the most important message for to the reader.

After introduction, problem statement is defined. In the problem statement, the company’s most important problem and constraints to solve these problems should be define clearly. However, the problem should be concisely define in no more than a paragraph. After defining the problems and constraints, analysis of the case study is begin.

STEP 4: SWOT Analysis of the Shouldice Hospital Ltd HBR Case Solution:

SWOT analysis helps the business to identify its strengths and weaknesses, as well as understanding of opportunity that can be availed and the threat that the company is facing. SWOT for Shouldice Hospital Ltd is a powerful tool of analysis as it provide a thought to uncover and exploit the opportunities that can be used to increase and enhance company’s operations. In addition, it also identifies the weaknesses of the organization that will help to be eliminated and manage the threats that would catch the attention of the management.

This strategy helps the company to make any strategy that would differentiate the company from competitors, so that the organization can compete successfully in the industry. The strengths and weaknesses are obtained from internal organization. Whereas, the opportunities and threats are generally related from external environment of organization. Moreover, it is also called Internal-External Analysis.

In the strengths, management should identify the following points exists in the organization:

• Advantages of the organization
• Activities of the company better than competitors.
• Unique resources and low cost resources company have.
• Activities and resources market sees as the company’s strength.
• Unique selling proposition of the company.

WEAKNESSES:

• Improvement that could be done.
• Activities that can be avoided for Shouldice Hospital Ltd.
• Activities that can be determined as your weakness in the market.
• Factors that can reduce the sales.
• Competitor’s activities that can be seen as your weakness.

OPPORTUNITIES:

• Good opportunities that can be spotted.
• Interesting trends of industry.
• Change in technology and market strategies
• Government policy changes that is related to the company’s field
• Changes in social patterns and lifestyles.
• Local events.

Following points can be identified as a threat to company:

• Company’s facing obstacles.
• Activities of competitors.
• Product and services quality standards
• Threat from changing technologies
• Financial/cash flow problems
• Weakness that threaten the business.

Following points should be considered when applying SWOT to the analysis:

• Precise and verifiable phrases should be sued.
• Prioritize the points under each head, so that management can identify which step has to be taken first.
• Apply the analyses at proposed level. Clear yourself first that on what basis you have to apply SWOT matrix.
• Make sure that points identified should carry itself with strategy formulation process.
• Use particular terms (like USP, Core Competencies Analyses etc.) to get a comprehensive picture of analyses.

STEP 5: PESTEL/ PEST Analysis of Shouldice Hospital Ltd Case Solution:

Pest analyses is a widely used tool to analyze the Political, Economic, Socio-cultural, Technological, Environmental and legal situations which can provide great and new opportunities to the company as well as these factors can also threat the company, to be dangerous in future.

Pest analysis is very important and informative.  It is used for the purpose of identifying business opportunities and advance threat warning. Moreover, it also helps to the extent to which change is useful for the company and also guide the direction for the change. In addition, it also helps to avoid activities and actions that will be harmful for the company in future, including projects and strategies.

To analyze the business objective and its opportunities and threats, following steps should be followed:

• Brainstorm and assumption the changes that should be made to organization. Answer the necessary questions that are related to specific needs of organization
• Analyze the opportunities that would be happen due to the change.
• Analyze the threats and issues that would be caused due to change.
• Perform cost benefit analyses and take the appropriate action.

Pest analysis

PEST FACTORS:

• Next political elections and changes that will happen in the country due to these elections
• Strong and powerful political person, his point of view on business policies and their effect on the organization.
• Strength of property rights and law rules. And its ratio with corruption and organized crimes. Changes in these situation and its effects.
• Change in Legislation and taxation effects on the company
• Trend of regulations and deregulations. Effects of change in business regulations
• Timescale of legislative change.
• Other political factors likely to change for Shouldice Hospital Ltd.

ECONOMICAL:

• Position and current economy trend i.e. growing, stagnant or declining.
• Exchange rates fluctuations and its relation with company.
• Change in Level of customer’s disposable income and its effect.
• Fluctuation in unemployment rate and its effect on hiring of skilled employees
• Access to credit and loans. And its effects on company
• Effect of globalization on economic environment
• Considerations on other economic factors

SOCIO-CULTURAL:

• Change in population growth rate and age factors, and its impacts on organization.
• Effect on organization due to Change in attitudes and generational shifts.
• Standards of health, education and social mobility levels. Its changes and effects on company.
• Employment patterns, job market trend and attitude towards work according to different age groups.

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• Social attitudes and social trends, change in socio culture an dits effects.
• Religious believers and life styles and its effects on organization
• Other socio culture factors and its impacts.

TECHNOLOGICAL:

• Any new technology that company is using
• Any new technology in market that could affect the work, organization or industry
• Access of competitors to the new technologies and its impact on their product development/better services.
• Research areas of government and education institutes in which the company can make any efforts
• Changes in infra-structure and its effects on work flow
• Existing technology that can facilitate the company
• Other technological factors and their impacts on company and industry

These headings and analyses would help the company to consider these factors and make a “big picture” of company’s characteristics. This will help the manager to take the decision and drawing conclusion about the forces that would create a big impact on company and its resources.

STEP 6: Porter’s Five Forces/ Strategic Analysis Of The Shouldice Hospital Ltd Case Study:

To analyze the structure of a company and its corporate strategy, Porter’s five forces model is used. In this model, five forces have been identified which play an important part in shaping the market and industry. These forces are used to measure competition intensity and profitability of an industry and market.

porter’s five forces model

These forces refers to micro environment and the company ability to serve its customers and make a profit. These five forces includes three forces from horizontal competition and two forces from vertical competition. The five forces are discussed below:

• THREAT OF NEW ENTRANTS:
• as the industry have high profits, many new entrants will try to enter into the market. However, the new entrants will eventually cause decrease in overall industry profits. Therefore, it is necessary to block the new entrants in the industry. following factors is describing the level of threat to new entrants:
• Barriers to entry that includes copy rights and patents.
• High capital requirement
• Government restricted policies
• Switching cost
• Access to suppliers and distributions
• Customer loyalty to established brands.
• THREAT OF SUBSTITUTES:
• this describes the threat to company. If the goods and services are not up to the standard, consumers can use substitutes and alternatives that do not need any extra effort and do not make a major difference. For example, using Aquafina in substitution of tap water, Pepsi in alternative of Coca Cola. The potential factors that made customer shift to substitutes are as follows:
• Price performance of substitute
• Switching costs of buyer
• Products substitute available in the market
• Reduction of quality
• Close substitution are available
• DEGREE OF INDUSTRY RIVALRY:
• the lesser money and resources are required to enter into any industry, the higher there will be new competitors and be an effective competitor. It will also weaken the company’s position. Following are the potential factors that will influence the company’s competition:
• Competitive advantage
• Continuous innovation
• Sustainable position in competitive advantage
• Level of advertising
• Competitive strategy
• BARGAINING POWER OF BUYERS:
• it deals with the ability of customers to take down the prices. It mainly consists the importance of a customer and the level of cost if a customer will switch from one product to another. The buyer power is high if there are too many alternatives available. And the buyer power is low if there are lesser options of alternatives and switching. Following factors will influence the buying power of customers:
• Bargaining leverage
• Switching cost of a buyer
• Buyer price sensitivity
• Competitive advantage of company’s product
• BARGAINING POWER OF SUPPLIERS:
• this refers to the supplier’s ability of increasing and decreasing prices. If there are few alternatives o supplier available, this will threat the company and it would have to purchase its raw material in supplier’s terms. However, if there are many suppliers alternative, suppliers have low bargaining power and company do not have to face high switching cost. The potential factors that effects bargaining power of suppliers are the following:
• Input differentiation
• Impact of cost on differentiation
• Strength of distribution centers
• Input substitute’s availability.

STEP 7: VRIO Analysis of Shouldice Hospital Ltd:

Vrio analysis for Shouldice Hospital Ltd case study identified the four main attributes which helps the organization to gain a competitive advantages. The author of this theory suggests that firm must be valuable, rare, imperfectly imitable and perfectly non sustainable. Therefore there must be some resources and capabilities in an organization that can facilitate the competitive advantage to company. The four components of VRIO analysis are described below: VALUABLE: the company must have some resources or strategies that can exploit opportunities and defend the company from major threats. If the company holds some value then answer is yes. Resources are also valuable if they provide customer satisfaction and increase customer value. This value may create by increasing differentiation in existing product or decrease its price. Is these conditions are not met, company may lead to competitive disadvantage. Therefore, it is necessary to continually review the Shouldice Hospital Ltd company’s activities and resources values. RARE: the resources of the Shouldice Hospital Ltd company that are not used by any other company are known as rare. Rare and valuable resources grant much competitive advantages to the firm. However, when more than one few companies uses the same resources and provide competitive parity are also known as rare resources. Even, the competitive parity is not desired position, but the company should not lose its valuable resources, even they are common. COSTLY TO IMITATE : the resources are costly to imitate, if other organizations cannot imitate it. However, imitation is done in two ways. One is duplicating that is direct imitation and the other one is substituting that is indirect imitation.  Any firm who has valuable and rare resources, and these resources are costly to imitate, have achieved their competitive advantage. However, resources should also be perfectly non sustainable. The reasons that resource imitation is costly are historical conditions, casual ambiguity and social complexity. ORGANIZED TO CAPTURE VALUE : resources, itself, cannot provide advantages to organization until it is organized and exploit to do so. A firm (like Shouldice Hospital Ltd)  must organize its management systems, processes, policies and strategies to fully utilize the resource’s potential to be valuable, rare and costly to imitate.

STEP 8: Generating Alternatives For Shouldice Hospital Ltd Case Solution:

After completing the analyses of the company, its opportunities and threats, it is important to generate a solution of the problem and the alternatives a company can apply in order to solve its problems. To generate the alternative of problem, following things must to be kept in mind:

• Realistic solution should be identified that can be operated in the company, with all its constraints and opportunities.
• as the problem and its solution cannot occur at the same time, it should be described as mutually exclusive
• it is not possible for a company to not to take any action, therefore, the alternative of doing nothing is not viable.
• Student should provide more than one decent solution. Providing two undesirable alternatives to make the other one attractive is not acceptable.

Once the alternatives have been generated, student should evaluate the options and select the appropriate and viable solution for the company.

STEP 9: Selection Of Alternatives For Shouldice Hospital Ltd Case Solution:

It is very important to select the alternatives and then evaluate the best one as the company have limited choices and constraints. Therefore to select the best alternative, there are many factors that is needed to be kept in mind. The criteria’s on which business decisions are to be selected areas under:

• Improve profitability
• Increase sales, market shares, return on investments
• Customer satisfaction
• Brand image
• Corporate mission, vision and strategy
• Resources and capabilities

Alternatives should be measures that which alternative will perform better than other one and the valid reasons. In addition, alternatives should be related to the problem statements and issues described in the case study.

STEP 10: Evaluation Of Alternatives For Shouldice Hospital Ltd Case Solution:

If the selected alternative is fulfilling the above criteria, the decision should be taken straightforwardly. Best alternative should be selected must be the best when evaluating it on the decision criteria. Another method used to evaluate the alternatives are the list of pros and cons of each alternative and one who has more pros than cons and can be workable under organizational constraints.

STEP 11: Recommendations For Shouldice Hospital Ltd Case Study (Solution):

There should be only one recommendation to enhance the company’s operations and its growth or solving its problems. The decision that is being taken should be justified and viable for solving the problems.

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Select the best alternative for each of the multiple choice questions, and fill in your choice in the following table.

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• Which of the following statements regarding limited partnerships is true?
• A) There is no limit on a limited partner's liability.
• B) A limited partner's liability is limited by the amount of his investment.
• C) A limited partner is not liable until all of the assets of the general partners have been exhausted.
• D) A general partner's liability is limited by the amount of his investment.
• If shareholders are unhappy with a CEO's performance, they are most likely to
• A) buy more shares in an effort to gain control of the firm.
• B) file a shareholder resolution.
• C) replace the CEO through a grassroots shareholder uprising.
• D) sell their shares.
• By comparing a firm's current assets and current liabilities, one can assess whether the firm has sufficient ________ to meet its ________ needs.
• A) long-term capital; short-term
• B) working capital; short-term
• C) working capital; long-term
• D) marketable securities; long-term
• Management is also required to disclose any ________, which are transactions or arrangements that can have a material impact on the firms future performance yet to do not appear on the ________.
• A) earnings per share; income statement
• B) investment decision; statement of cash flows
• C) financing decision; statement of cash flows
• D) off-balance sheet transactions; balance sheet
• Consider the following oil prices.

Alaska North Slope Crude Oil (ANS)

West Texas Intermediate Crude Oil (WTI)

As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil.  Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude.

Assuming you currently have 10,000 Bbls of WTI crude, the added benefit (cost) to you if you were to sell the 10,000 Bbls of WTI crude and use the proceeds to purchase and refine ANS crude is closest to:

• A) ($1,400)
• C) ($3,908)
• Consider the following cash flows:    

If the risk-free interest rate is 10%, then of the four projects listed, if could only invest in two of these projects, which two projects would you select?

• A) Minie & Eenie
• B) Minie & Meenie
• C) Eenie & Moe
• D) Eenie & Meenie
• Consider the following timeline detailing a stream of cash flows:

If the current market rate of interest is 10%, then the present value of this stream of cash flows is closest to:

• Since your first birthday, your grandparents have been depositing $1,000 into a savings account on every one of your birthdays. The account pays 4% interest annually. Immediately after your grandparents make the deposit on your 18th birthday, the amount of money in your savings account will be closest to:

Consider the following investment alternatives:

Which alternative offers you the lowest effective rate of return?

• A) Investment A
• B) Investment B
• C) Investment C
• D) Investment D
• The term structure of interest rates predicts that long-term interest rates will exceed short-term interest rates, resulting in an upward sloping yield curve. If Central Banks were to intervene in the financial market to "flatten" the shape of the yield curve, they would attempt this by
• A) purchasing long-term bonds.
• B) selling long-term bonds.
• C) purchasing short-term bonds.
• D) selling short-term bonds.
• The Sisyphean Company has a bond outstanding with a face value of $1,000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semi-annually.

Assuming the appropriate YTM on the Sisyphean bond is 9%, then this bond will trade at

• A) a premium.
• B) a discount.
• D) none of the above
• Consider the following four bonds that pay annual coupons:

The percentage change in the price of the bond "C" if its yield to maturity increases from 9% to 10% is closest to:

• JRN Enterprises just announced that it plans to cut its dividend from $2.50 to $1.50 per share and use the extra funds to expand its operations. Prior to this announcement, JRN's dividends were expected to grow at 4% per year and JRN's stock was trading at $25.00 per share. With the new expansion, JRN's dividends are expected to grow at 8% per year indefinitely. Assuming that JRN's risk is unchanged by the expansion, the value of a share of JRN after the announcement is closest to:
• Defenestration Industries plans to pay a $4.00 dividend this year and you expect that the firm's earnings are on track to grow at 5% per year for the foreseeable future. Defenestration's equity cost of capital is 13%.

Suppose that Defenestration decides to pay a dividend of only $2 per share this year and use the remaining $2 per share to repurchase stock. If Defenestration's payout rate remains constant, then Defenestration's stock price is closest to:

• Consider the following two projects:

The NPV for project Beta is closest to:

• Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and cost $250,000 per year, with the first of the four equal investments payable today upon acceptance of the project. Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years.  Boulderado's discount rate is 10%.

The IRR for Boulderado's snowboard project is closest to:

• The Sisyphean Corporation is considering investing in a new cane manufacturing machine that has an estimated life of three years. The cost of the machine is $30,000 and the machine will be depreciated straight line over its three-year life to a residual value of $0.

The cane manufacturing machine will result in sales of 2,000 canes in year 1.  Sales are estimated to grow by 10% per year each year through year three.  The price per cane that Sisyphean will charge its customers is $18 each and is to remain constant.  The canes have a cost per unit to manufacture of $9 each.

Installation of the machine and the resulting increase in manufacturing capacity will require an increase in various net working capital accounts.  It is estimated that the Sisyphean Corporation needs to hold 2% of its annual sales in cash, 4% of its annual sales in accounts receivable, 9% of its annual sales in inventory, and 5% of its annual sales in accounts payable.  The firm is in the 35% tax bracket, and has a cost of capital of 10%.

The incremental unlevered net income in the first year for the Sisyphean Corporation's project is closest to:

• C) $5,200D) $11,700
• You are considering adding a microbrewery onto one of your firm's existing restaurants. This will entail an investment of $40,000 in new equipment. This equipment will be depreciated straight line over five years. If your firm's marginal corporate tax rate is 35%, then what is the value of the micro brewery's depreciation tax shield in the first year of operation?
• Consider the following probability distribution of returns for Alpha Corporation:    

The standard deviation of the return on Alpha Corporation is closest to:

• Suppose that in the coming year, you expect Exxon-Mobil stock to have a volatility of 42% and a beta of 0.9, and Merck's stock to have a volatility of 24% and a beta of 1.1. The risk free interest rate is 4% and the market's expected return is 12%.

The cost of capital for a project with the same beta as Merck's stock is closest to:

• Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT) at $50 per share, 200 shares of Lowes (LOW) at $30 per share, and 100 shares of Ball Corporation (BLL) at $40 per share.

Suppose over the next year Ball has a return of 12.5%, Lowes has a return of 20%, and Abbott Labs has a return of -10%. The weight of Abbott Labs in your portfolio after one year is closest to:

• Consider an equally weighted portfolio that contains 20 stocks. If the average variance of these stocks is 35% and the average correlation between the stocks is .4, then the volatility of this equally weighted portfolio is closest to:
• Which of the following statements is false?
• A) When an investor chooses her optimal portfolio, she will do so by finding the tangent line using the risk-free rate that corresponds to her investment horizon.
• B) If the market portfolio is not efficient, savvy investors who recognize that the market portfolio is not optimal will push prices and expected returns back into balance.
• C) Even though different investors may research different stocks, their information will not impact the market portfolio since there is no way to share this information with other investors.
• D) In the real world borrowers pay higher interest rates than savers receive.
• Consider the following three individuals' portfolios consisting of investments in four stocks:

The beta on Peter's portfolio is closest to:

• Consider the following graph of the security market line:

Which of the following statements regarding portfolio "B" is/are correct?

• Portfolio "B" has a positive alpha.
• Portfolio "B" is overpriced.
• Portfolio "B" is less risky than the market portfolio.
• Portfolio "B" should not exist if the market portfolio is efficient.
• C) 1, 3, and 4
• Investors can ________ without reducing their expected return.
• A) take more risk
• B) eliminate risk
• C) take the same risk
• D) reduce risk
• Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy, with each outcome being equally likely. The initial investment required for the project is $80,000, and the project's cost of capital is 15%. The risk-free interest rate is 5%.

Corporate Finance Harvard Case Solution & Analysis

Suppose that to raise the funds for the initial investment the firm borrows $40,000 at the risk free rate and issues new equity to cover the remainder. In this situation, the cost of capital for the firm's levered equity is closest to:

• You are evaluating a new project and need an estimate for your project's beta. You have identified the following information about three firms with comparable projects:......................

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Shouldice Hospital Limited B

By: James L. Heskett, Roger Hallowell

Supplement for case 805002

• Length: 4 page(s)
• Publication Date: Jan 8, 2013
• Discipline: Business Ethics
• Product #: 913405-HCB-ENG

What's included:

• Teaching Note
• Educator Copy

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• Included Materials

Jan 8, 2013 (Revised: Feb 26, 2013)

Discipline:

Business Ethics

Industries:

Hospitals and hospital management

Harvard Business School

913405-HCB-ENG

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