Assets Current Assets Cash Investmentsshort term Total cash and cash equival Accounts receivable Less: Allowance for doubtful 2020 2020 LIABILITIES and Owners' Equity Current Liabilities 7.448 Accounts paya 7.211 2.477 Third-party liab 3.654 9.925 Current portion 3.470 Total current 2.889 liabilities 14.335 7.142 Long-term debt 8.167 Other long- (4.253) term liabilities 7.981 LONG-TERM 9.174 LIABILITIES 16.149 9.148 Total liabilities 30.484 4.686 Equity 670.861 Retained 28.680 Earnings 31.106 9.253 Total Equity 701.967 7.216 7.016 2.380 Net patient receivables Inventory Prepaid expenses Other current assets Total current assets Long-term investments-un Trusteed investments Endowment fund investmer Deferred financing costs Property, plant, and equipment (PP&E) Land and land improvement 8.613 Buildings 638.618 Leasehold improvements 8.337 Equipment and fixtures 14.331 Construction in progress 20.801 Total PP&E 690.700 Less: Accumulated depreciation 12.795 Net PP&E 677.905 TOTAL ASSETS Total 732.451 Liabilities and Owners' Equity 732.451 2020 817.317 66.927 884.244 Inpatient revenue Outpatient revenue Total patient revenue Less: Contractual and other adjustments Less: Charity care 99.739 26.117 758.388 6.689 765.077 437.316 168.349 7.530 613.195 6.810 3.169 2.564 10.547 Net patient service revenue Add: Other operating income Total revenue EXPENSES Salaries Contract labor Fringe benefits Total salaries and benefits Bad debts Patient care supplies Professional and management fees Purchased services Operation of plant (including utilities) Depreciation Earnings Before Interest and Taxes Interest and financing expenses Other Operation margin (loss) NONOPERATING INCOME Gain (loss) on investments Investment income Total nonoperating income Total Operating Income Tax Net Profit 33.794 20.064 74.934 34.081 5.336 35.518 2.809 4.480 7.288 42.806 17.122 25.684 Cost of Equity Using Historical Net Return on Equity Model Profits (2015-2019) Years Net Profits (Millions) Growth Rate (Continuous Compound) 2016 2017 2018 2019 2020 21.98 24.84 28.26 32.12 25.68 Current Year 2021 Average Growth Rate Expected Year Expected Net Profits = Current Net Profits (1+Growth Rate) Expected Net Profits (2020) Current Total Equity Cost of Equity Using Return on Equity (ROE) Model Expected Net Profit RE - + SP Total Equity R=Required retun, or Cost of equity &p=Growth rate of Net Profits Total Debt (Bank Loan) Cost of Debt (Bank Loans) 1.823% Tax Rate 40% Total Capital (Debt + Equity) Proportion of Equity Proportion of Debt (Bank Loan) WACC = (E/V)*RE +(D/V)*R*(1-T.) WACC = Weighted Average Cost of Capital (E/V)= Percentage of equity to total capital Re = Cost of Equity (D/V) = Percentage of debt to total capital Rp = Cost of Debt Tc = Tax rate Weighted Average Cost of Capital (WACC) Discuss the recommended changes to reach a target WACC = 6% Assets Current Assets Cash Investmentsshort term Total cash and cash equival Accounts receivable Less: Allowance for doubtful 2020 2020 LIABILITIES and Owners' Equity Current Liabilities 7.448 Accounts paya 7.211 2.477 Third-party liab 3.654 9.925 Current portion 3.470 Total current 2.889 liabilities 14.335 7.142 Long-term debt 8.167 Other long- (4.253) term liabilities 7.981 LONG-TERM 9.174 LIABILITIES 16.149 9.148 Total liabilities 30.484 4.686 Equity 670.861 Retained 28.680 Earnings 31.106 9.253 Total Equity 701.967 7.216 7.016 2.380 Net patient receivables Inventory Prepaid expenses Other current assets Total current assets Long-term investments-un Trusteed investments Endowment fund investmer Deferred financing costs Property, plant, and equipment (PP&E) Land and land improvement 8.613 Buildings 638.618 Leasehold improvements 8.337 Equipment and fixtures 14.331 Construction in progress 20.801 Total PP&E 690.700 Less: Accumulated depreciation 12.795 Net PP&E 677.905 TOTAL ASSETS Total 732.451 Liabilities and Owners' Equity 732.451 2020 817.317 66.927 884.244 Inpatient revenue Outpatient revenue Total patient revenue Less: Contractual and other adjustments Less: Charity care 99.739 26.117 758.388 6.689 765.077 437.316 168.349 7.530 613.195 6.810 3.169 2.564 10.547 Net patient service revenue Add: Other operating income Total revenue EXPENSES Salaries Contract labor Fringe benefits Total salaries and benefits Bad debts Patient care supplies Professional and management fees Purchased services Operation of plant (including utilities) Depreciation Earnings Before Interest and Taxes Interest and financing expenses Other Operation margin (loss) NONOPERATING INCOME Gain (loss) on investments Investment income Total nonoperating income Total Operating Income Tax Net Profit 33.794 20.064 74.934 34.081 5.336 35.518 2.809 4.480 7.288 42.806 17.122 25.684 Cost of Equity Using Historical Net Return on Equity Model Profits (2015-2019) Years Net Profits (Millions) Growth Rate (Continuous Compound) 2016 2017 2018 2019 2020 21.98 24.84 28.26 32.12 25.68 Current Year 2021 Average Growth Rate Expected Year Expected Net Profits = Current Net Profits (1+Growth Rate) Expected Net Profits (2020) Current Total Equity Cost of Equity Using Return on Equity (ROE) Model Expected Net Profit RE - + SP Total Equity R=Required retun, or Cost of equity &p=Growth rate of Net Profits Total Debt (Bank Loan) Cost of Debt (Bank Loans) 1.823% Tax Rate 40% Total Capital (Debt + Equity) Proportion of Equity Proportion of Debt (Bank Loan) WACC = (E/V)*RE +(D/V)*R*(1-T.) WACC = Weighted Average Cost of Capital (E/V)= Percentage of equity to total capital Re = Cost of Equity (D/V) = Percentage of debt to total capital Rp = Cost of Debt Tc = Tax rate Weighted Average Cost of Capital (WACC) Discuss the recommended changes to reach a target WACC = 6%
