Assume that you have been asked to place a value on the ownership position in Briarwood Hospital. Its projected profit and loss statements and equity reinvestment(asset) requirements are as follows(in millions):iarwood

2012 -- 2013-- 2014-- 2015 -- 2016 --

net revenues -------------------------------$225.0-- $240.0- 250.0- 260.0-- 275.0

cash expenses -----------------------------$ 200.00-- 205.0-- 210.0-- 215.0- 225.0

depreciation -------------------------------- 11.0 ---- 12.0 ---- 13.0-- 14.0 --- 150.0

earnings before interest and taxes -------- 14.0 -- 23.0 ---- 27.0 --- 31.0 --- 35.0

interest --------------------------------------- 8.0 --- 9.0 ---- 9.0 ---- 10.0 ---- 10.0

earnings before taxes(EBT)

TAXES(40 PERCENT) ------------------------- 6.0 ---- 14.0 ---- 18.0 ---- 21.0 ---- 25.0

-------------------------- 2.4 ----- 5.6 ----- 7.2 ---- 8.4 ------ 10.0

NET PROFIT -----------------------------------3.6 ------- 8.4 ----- 10.8 ---- 12.6 ---- 15.0

ASSET REQUIREMENTS ----------------------- 6.0 ----- 6.0 ---- 6.0 ------ 6.0 ------ 6.0

Briarwood's cost of equity is 16 percent. The best estimate for Briarwood's long term growth rate is 4 percent.

a. what is the equity value of the hospital?

b. suppose that the expected long term growth rate was 6 percent. what impact would this change have on the equity value of the business? what is the growth rate were only 2 percent?