Question
Its projected profit and loss statements and retention requirements are shown below (in millions): Year 1 Year 2 Year 3 Year 4 Year 5 Net
Its projected profit and loss statements and retention requirements are shown below (in millions):
Year 1 Year 2 Year 3 Year 4 Year 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.
c. I need the equity value of the hospital using the free cash flow to equity holders (FCFE) method. Please show calculations.
d. the expected long-term growth rate was 6 %.I need the impact and change that it would
have on the equity value of the business according to the FCFE method.I need the
growth rate if it were only 2 %? Please show calculations.
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