Case Questions Calabash Community Hospital Prepare a self contained Powerpoint presentation together with an excel. Motivate carefully your choices. Note that the questions do not have equal weights. Key is DCF analysis and sensitivity analysis. 1. What is discounted cash flow (DCF) analysis, and how does this help make capital expenditure decisions? How relevant is a DCF analysis for a not-for-profit hospital. 2. Is the need to have an ambulatory surgical center (ASC) so great that it is not necessary to organize a DCF analysis? 3. What is the role of the WACC in a NPV analysis? Could you use the WACC approach here in the analysis as discount rate? 4. Use the assumptions embedded in the case to complete a DCF analysis. Motivate carefully the choice of your discount rate. What is the Net present value (NPV)? What does the NPV imply about the investment? 5. Perform a sensitivity analysis on the basis of the most important assumptions. Show the implications for the NPV of the investment. Carefully motivate your choices. How would this change your decision? 6. What would be your decision on the basis of the provided information? What other information would you need to make such a decision. Title Page Exhibit 2 Exhibit 3 Exhibit 2 Calabash Community Hospital Financial Data on Comparable Companies (financial statement data from 2018) Tenet Healthcare Description: Operates 475 outpatient centers, 255 ambulatory surgery centers, 68 hospitals, 23 surgical hospitals, 36 urgent care centers, and 23 imaging centers. Revenue Enterprise value Market equity value Total debt $18.3 billion $21.4 billion $6.8 billion $14.6 billion Operating margin 11,0% Return on assets 5,5% Beta 0,75 Bond rating Ba Surgery Partners Description: Operates 108 ambulatory surgical centers and 15 surgical hospitals in 31 states. Revenue $1.8 billion Enterprise value- $4.7 billion $2.4 billion $2.3 billion Market equity value Total debt Operating margin Return on assets Beta 14,7% 3,5% 0,80 Bond rating B Source: Descriptions and company data are from Yahoo! Finance; bond ratings are from Moody's; Beta estimates are by author. Title Page Exhibit 2 Exhibit 3 Calabash Community Hospital Capital Markets Information (December 2019) 10-Year Government Bond Yields Australia 1.19% 6,82% Brazil Canada France Germany E Hong Kong India 1,44% 4,05% -4,35% 1,47% 6,47% 1,28% -0,04% 7,12% 1,71% 0,67% 1,72% Japan Mexico South Korea United Kingdom United States US Corporate Bond Yields As A Ba 2,81% 3,42% 4,32% 5,55% Ba B Note: The bonding represented the crediorthiness of the home with an "A"rating indicating a horrower with a very low bood of not making the debt payments and a sering indicating a bemower with an elevated kelihood of at making the debe papunts. The yield represen Surces Govendiks are from oonberg.com (keshond on December 3, 2019. The corporate bood yield Dashboard Calendar To-do Notifications Inbox Exhibit 3 Exhibit 2 Calabash Community Hospital Financial Data on Comparable Companies (financial statement data from 2018) Tenet Healthcare Description: Operates 475 outpatient centers, 255 ambulatory surgery centers, 68 hospitals, 23 surgical hospitals, 36 urgent care centers, and 23 imaging centers. $18.3 billion Revenue Enterprise value $21.4 billion Market equity value $6.8 billion Total debt $14.6 billion Operating margin 11.0% Return on assets 5.5% Beta 0.75 Bond rating Ba Surgery Partners Description: Operates 108 ambulatory surgical centers and 15 surgical hospitals in 31 states. Revenue $1.8 billion Enterprise value $4.7 billion Market equity value $2.4 billion Total debt $2.3 billion Operating margin 14.7% Return on assets 3.5% Beta 0.80 Bond rating B Source: Descriptions and company data are from Yahoo! Finance; bond ratings are from Moody's; Beta estimates are by author. Exhibit 3 Calabash Community Hospital Capital Markets Information (December 2019) 10-Year Government Bond Yields Australia 1.19% Brazil 6.82% Canada 1.44% France -0.05% -0.35% Germany Hong Kong 1.47% India 6.47% Italy 1.28% Japan -0.04% Mexico 7.12% South Korea 1.71% United Kingdom 0.67% United States 1.72% US Corporate Bond Yields Aa 2.32% A 2.81% Baa 3.42% Ba 4.32% B 5.55% Case Questions Calabash Community Hospital Prepare a self contained Powerpoint presentation together with an excel. Motivate carefully your choices. Note that the questions do not have equal weights. Key is DCF analysis and sensitivity analysis. 1. What is discounted cash flow (DCF) analysis, and how does this help make capital expenditure decisions? How relevant is a DCF analysis for a not-for-profit hospital. 2. Is the need to have an ambulatory surgical center (ASC) so great that it is not necessary to organize a DCF analysis? 3. What is the role of the WACC in a NPV analysis? Could you use the WACC approach here in the analysis as discount rate? 4. Use the assumptions embedded in the case to complete a DCF analysis. Motivate carefully the choice of your discount rate. What is the Net present value (NPV)? What does the NPV imply about the investment? 5. Perform a sensitivity analysis on the basis of the most important assumptions. Show the implications for the NPV of the investment. Carefully motivate your choices. How would this change your decision? 6. What would be your decision on the basis of the provided information? What other information would you need to make such a decision. Title Page Exhibit 2 Exhibit 3 Exhibit 2 Calabash Community Hospital Financial Data on Comparable Companies (financial statement data from 2018) Tenet Healthcare Description: Operates 475 outpatient centers, 255 ambulatory surgery centers, 68 hospitals, 23 surgical hospitals, 36 urgent care centers, and 23 imaging centers. Revenue Enterprise value Market equity value Total debt $18.3 billion $21.4 billion $6.8 billion $14.6 billion Operating margin 11,0% Return on assets 5,5% Beta 0,75 Bond rating Ba Surgery Partners Description: Operates 108 ambulatory surgical centers and 15 surgical hospitals in 31 states. Revenue $1.8 billion Enterprise value- $4.7 billion $2.4 billion $2.3 billion Market equity value Total debt Operating margin Return on assets Beta 14,7% 3,5% 0,80 Bond rating B Source: Descriptions and company data are from Yahoo! Finance; bond ratings are from Moody's; Beta estimates are by author. Title Page Exhibit 2 Exhibit 3 Calabash Community Hospital Capital Markets Information (December 2019) 10-Year Government Bond Yields Australia 1.19% 6,82% Brazil Canada France Germany E Hong Kong India 1,44% 4,05% -4,35% 1,47% 6,47% 1,28% -0,04% 7,12% 1,71% 0,67% 1,72% Japan Mexico South Korea United Kingdom United States US Corporate Bond Yields As A Ba 2,81% 3,42% 4,32% 5,55% Ba B Note: The bonding represented the crediorthiness of the home with an "A"rating indicating a horrower with a very low bood of not making the debt payments and a sering indicating a bemower with an elevated kelihood of at making the debe papunts. The yield represen Surces Govendiks are from oonberg.com (keshond on December 3, 2019. The corporate bood yield Dashboard Calendar To-do Notifications Inbox Exhibit 3 Exhibit 2 Calabash Community Hospital Financial Data on Comparable Companies (financial statement data from 2018) Tenet Healthcare Description: Operates 475 outpatient centers, 255 ambulatory surgery centers, 68 hospitals, 23 surgical hospitals, 36 urgent care centers, and 23 imaging centers. $18.3 billion Revenue Enterprise value $21.4 billion Market equity value $6.8 billion Total debt $14.6 billion Operating margin 11.0% Return on assets 5.5% Beta 0.75 Bond rating Ba Surgery Partners Description: Operates 108 ambulatory surgical centers and 15 surgical hospitals in 31 states. Revenue $1.8 billion Enterprise value $4.7 billion Market equity value $2.4 billion Total debt $2.3 billion Operating margin 14.7% Return on assets 3.5% Beta 0.80 Bond rating B Source: Descriptions and company data are from Yahoo! Finance; bond ratings are from Moody's; Beta estimates are by author. Exhibit 3 Calabash Community Hospital Capital Markets Information (December 2019) 10-Year Government Bond Yields Australia 1.19% Brazil 6.82% Canada 1.44% France -0.05% -0.35% Germany Hong Kong 1.47% India 6.47% Italy 1.28% Japan -0.04% Mexico 7.12% South Korea 1.71% United Kingdom 0.67% United States 1.72% US Corporate Bond Yields Aa 2.32% A 2.81% Baa 3.42% Ba 4.32% B 5.55%