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 1Year 2Year 3Year 4Year 5

Net revenues $225.0$240.0$250.0$260.0$275.0

Cash expenses $200.0$205.0$210.0$215.0$225.0

Depreciation $11.0$12.0$13.0$14.0$15.0

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 $6.0$14.0$18.0$21.0$25.0

Taxes (40 percent) $2.4$5.6$7.2$8.4$10.0

Net profit $3.6$8.4$10.8$12.6$15.0

Estimated retentions $10.0$10.0$10.0$10.0$10.0

Briarwood's cost of equity is 16 %, its cost of debt is 10 %, and its optimal capital

structure is 40 % debt and 60 % equity. The best estimate for Briarwood's long-term

growth rate is 4 %. Furthermore, the hospital currently has $80 million in debt outstanding.

a.I need the equity value of the hospital using the free operating cash flow (FOCF) method.

b. The expected long-term growth rate was 6 %.I need the impact/change

that would have on the equity value of the business according to the FOCF method.

I need the growth rate if it were only 2 %.