Given the assumptions below, make a value calculation for DH Hospital as it considers this merger (Clinic Acquisition). Will it increase revenue of their primary care services? Also evaluate if utilization of pure debt financing is a good option to make for this investment.

Scenario: DH hospital is allotting $5 million for this proposal to acquire a clinic. Consider since debt rates are at historic lows, if it makes sense to pursue this purchase with additional financing through debt?

Assumptions:

As a non profit entity, DH hosptial's tax rate is 0%

The expected cost of equity is 10% from a similar for-profit hospital

The average debt rate for long term government bonds is 6%

The current owners of HR Clinic have a place a best and final purchase price at $5 million.

The clinic currently has $15m million of debt outstanding.

Net revenues are projected to be $15 million with a growth rate of 3% for the next 5 years and 5% after that.

Cash expenses are projected to be $13 million with a growth rate of 3% for the next 3 years and 5% after that.

Depreciation and interest expense are both fixed at $2 million annually.

Balance Sheet FYE 09/30/2020 Amounts in (000) Income Statement FYE 09/30/2020 Amounts in (.000) Interest rate on debt 6% 2020 Return on Equity 10% Current Assets Cash Accounts Receivable Inventory (ie Medical Supplies) Total Currents Assets 2020 S1.100 3.555 93 $4,748 WACC Revenues Gross Patient Services Revenue Interest Income Total Revenues $3,765 976 $4,741 Long Term Assets Office Furniture Computers Total Long Term Assets SO 72 SI22 Expenses Clinical Salaries and Benefits Admin Salaries and Benefits Rent Leases Interest Expense Drugs and Supply Expense Total Expenses Total Assets $4,870 $993 567 123 150 211 $2,044 Current Liabilities Accounts Payable Accrued Expenses Payable 5822 1.213 Net Income 51,028 Total Current Liabilities $2,035 Tax rate 0% due to Non-profit designation Long Term Liabilities Long Term Debt Total Long Term Liabilities Total Liabilities S1,759 SI,759 51,794 Owner's Equity Contributed Capital Retained Earnings Total Equity Total Liabilities & Equity Net Assets $2.000 952 S2,952 56,746 51,076 Balance Sheet FYE 09/30/2020 Amounts in (000) Income Statement FYE 09/30/2020 Amounts in (.000) Interest rate on debt 6% 2020 Return on Equity 10% Current Assets Cash Accounts Receivable Inventory (ie Medical Supplies) Total Currents Assets 2020 S1.100 3.555 93 $4,748 WACC Revenues Gross Patient Services Revenue Interest Income Total Revenues $3,765 976 $4,741 Long Term Assets Office Furniture Computers Total Long Term Assets SO 72 SI22 Expenses Clinical Salaries and Benefits Admin Salaries and Benefits Rent Leases Interest Expense Drugs and Supply Expense Total Expenses Total Assets $4,870 $993 567 123 150 211 $2,044 Current Liabilities Accounts Payable Accrued Expenses Payable 5822 1.213 Net Income 51,028 Total Current Liabilities $2,035 Tax rate 0% due to Non-profit designation Long Term Liabilities Long Term Debt Total Long Term Liabilities Total Liabilities S1,759 SI,759 51,794 Owner's Equity Contributed Capital Retained Earnings Total Equity Total Liabilities & Equity Net Assets $2.000 952 S2,952 56,746 51,076 Given the assumptions below, make a value calculation for DH Hospital as it considers this merger (Clinic Acquisition). Will it increase revenue of their primary care services? Also evaluate if utilization of pure debt financing is a good option to make for this investment Scenario: DH hospital is allotting $5 million for this proposal to acquire a clinic. Consider since debt rates are at historic lows, if it makes sense to pursue this purchase with additional financing through debt? Assumptions: As a non profit entity, DH hosptial's tax rate is 0% The expected cost of equity is 10% from a similar for-profit hospital The average debt rate for long term government bonds is 6% The current owners of HR Clinic have a place a best and final purchase price at $5 million. The clinic currently has $15m million of debt outstanding. Net revenues are projected to be $15 million with a growth rate of 3% for the next 5 years and 5% after that. Cash expenses are projected to be $13 million with a growth rate of 3% for the next 3 years and 5% after that. Depreciation and interest expense are both fixed at $2 million annually