$1$

$.$

a

$\mathrm{.}1$

$$Assume that you have been asked to place a value on the ownership position in Briarwood Hospital. Its projected profit and loss statements and retention requirements are shown below

$($

in millions

$)$

:

Year

$1$

$$Year

$2$

$$Year

$3$

$$Year

$4$

$$Year

$5$

Net revenues $

$225\mathrm{.}0$

$$$

$240\mathrm{.}0$

$$$

$250\mathrm{.}0$

$$$

$260\mathrm{.}0$

$$$

$275\mathrm{.}0$

Cash expenses $

$200\mathrm{.}0$

$$$

$205\mathrm{.}0$

$$$

$210\mathrm{.}0$

$$$

$215\mathrm{.}0$

$$$

$225\mathrm{.}0$

Depreciation $

$11\mathrm{.}0$

$$$

$12\mathrm{.}0$

$$$

$13\mathrm{.}0$

$$$

$14\mathrm{.}0$

$$$

$15\mathrm{.}0$

$$ Earnings before interest and taxes $

$14\mathrm{.}0$

$$$

$23\mathrm{.}0$

$$$

$27\mathrm{.}0$

$$$

$31\mathrm{.}0$

$$$

$35\mathrm{.}0$

Interest $

$8\mathrm{.}0$

$$$

$9\mathrm{.}0$

$$$

$9\mathrm{.}0$

$$$

$10\mathrm{.}0$

$$$

$10\mathrm{.}0$

Earnings before taxes $

$6\mathrm{.}0$

$$$

$14\mathrm{.}0$

$$$

$18\mathrm{.}0$

$$$

$21\mathrm{.}0$

$$$

$25\mathrm{.}0$

Taxes

$(40$

$\%$

$)$

$$$

$2\mathrm{.}4$

$$$

$5\mathrm{.}6$

$$$

$7\mathrm{.}2$

$$$

$8\mathrm{.}4$

$$$

$10\mathrm{.}0$

Net profit $

$3\mathrm{.}6$

$$$

$8\mathrm{.}4$

$$$

$10\mathrm{.}8$

$$$

$12\mathrm{.}6$

$$$

$15\mathrm{.}0$

Estimated retentions $

$10\mathrm{.}0$

$$$

$10\mathrm{.}0$

$$$

$10\mathrm{.}0$

$$$

$10\mathrm{.}0$

$$$

$10\mathrm{.}0$

Briarwood's cost of equity is

$16$

$$percent$,$ its cost of debt is

$10$

$$percent$,$ and its optimal capital structure is

$40$

$$percent debt and

$60$

$$percent equity. The best estimate for Briarwood's long

$-$

term growth rate is

$4$

$$percent$.$ Furthermore, the hospital currently has $

$80$

$$million in debt outstanding.

Suppose you decide to use the free operating cash flow

$($

FOCF

$)$

$$method to find the equity value of the hospital. What is the FOCF in year

$1$

$?$

Write your answer in millions of dollars. Round to one decimal place. For example, if the answer is $

$1\mathrm{.}2$

$$million$,$ type

$1\mathrm{.}2$

$.$

$1$

$.$

a

$\mathrm{.}2$

$.$

$$Continuing with the previous question, what is the FOCF in year

$2$

$?$

Write your answer in millions of dollars. Round to one decimal place.

$1$

$.$

a

$\mathrm{.}3$

$.$

$$Continuing with the previous questions, what is Briarwood's corporate cost of capital

$($

CCC

$)$

$?$

Type your answer as a percent. Round to the nearest percent.

$1$

$.$

a

$\mathrm{.}4$

$.$

$.$

$$Continuing with the previous questions, what is Briarwood's terminal value

$($

at date

$5)$

$?$

$$

Note: you will need the find the FOCFs from Years

$3$

$,$

$4$

$$and

$5$

$$to answer this question.

Write your answer in millions of dollars. Round to one decimal place.

$1$

$.$

e

$.$

$$Continuing with the previous questions, what is the equity value of Briarwood using the FOCF method?

Write your answer in millions of dollars. Round to two decimal places.

$1$

$.$

c

$\mathrm{.}1$

$.$

$$Following from the previous questions, suppose now you decide to use the free cash flow to equityholders

$($

FCFE

$)$

$$method to find the equity value of the hospital. What is the FCFE in year

$1$

$?$

Write your answer in millions of dollars. Round to one decimal place.

$1$

$.$

c

$\mathrm{.}2$

$.$

$$Continuing with the previous questions, what is the FCFE in Year

$2$

$?$

$$

Write your answer in millions of dollars. Round to one decimal place.

$1$

$.$

c

$\mathrm{.}3$

$.$

$$Continuing with the previous questions, what is the terminal value?

Write your answer in millions of dollars.

$1$

$.$

c

$\mathrm{.}4$

$.$

$$Continuing with the previous questions, what is the equity value of the hospital using the free cash flow to equityholders method?

Write your answer in millions of dollars. Round to two decimal places.