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Does adding debt increase or decrease flexibility in healthcare?

Question:

Does adding debt increase or decrease flexibility in healthcare?

Debt:

Debt is the amount of cash that one party borrows from another, whereby the principal amount is to be paid back within a certain stated period in the future with interest. People and organizations use debt for the funding of projects and large purchases that they cannot afford under their circumstances. The amount of interest put on a loan is a form of compensation to the lender for risking the loan while to the borrower; it encourages then to pay back the loan fast to minimize the amount of interest.

Answer and Explanation:

The addition of debt decreases the flexibility in health care since it increases the debt liability of the facility. When debt is offered, an interest has to be paid to it after a period. This would lead to the health care facility incurring costs for financing the interest payment. They would also have an obligation of meeting the restrictions for them to satisfy the bondholders. The increase of debt, therefore, increases the expenditure through repaying of the principal amount plus the interest leading to reduced flexibility.


Learn more about this topic:

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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7
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