Question
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
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 reinvestments (asset) requirements are as follows (in millions):
| 2016 | 2017 | 2018 | 2019 | 2020 | |
| Net Revenues | $225.00 | $240.00 | $250.00 | $260.00 | $275.00 |
| Cash expenses | $200.00 | $205.00 | $210.00 | $215.00 | $225.00 |
| Depreciation | $11.00 | $12.00 | $13.00 | $14.00 | $15.00 |
| EBIT | $14.00 | $23.00 | $27.00 | $31.00 | $35.00 |
| Interest | $8.00 | $9.00 | $9.00 | $10.00 | $10.00 |
| EBT | $6.00 | $14.00 | $18.00 | $21.00 | $25.00 |
| Taxes (40 percent) | $2.40 | $5.60 | $7.20 | $8.40 | $10.00 |
| Net Profit | $3.60 | $8.40 | $10.80 | $12.60 | $15.00 |
| Asset requirements | $6.00 | $6.00 | $6.00 | $6.00 | $6.00 |
Briarwoods cost of equity is 16 percent. The best estimate for Briarwoods 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 if the growth rate were only 2 percent?
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Introduction To Financial Technology
Authors: Roy S. Freedman
1st Edition
0123704782, 9780123704788
