M7 Project 1 Chang Dental Read the instructions and the attached Excel spreadsheet thoroughly before starting the project! Objectives: 1. Perform a qualitative analysis on a capital budgeting project. 2. Perform a valuation analysis on an existing business. 3. Perform scenario analysis (that makes business sense!) Tasks: 1. Discuss the risks and rewards of investing in Chang Dental from Chris Millers perspective using a SWOT analysis. 2. Discuss the base case valuation provided to you. 3. Run scenario analyses on key variables using information from the case. 4. Make your final recommendation on whether or not Chris Miller should buy Chang Dental. Tips: Task 1: Use the information given in the case, but dont be afraid to include your own experiences with dentists in your analysis. Task 2: Use the Excel file posted. In sheets "Exh1" and "Exh2" are the financial statement data. In sheet "Base_Case" is the completed base case valuation forecast. M7_Project_1_Class.xlsxDownload M7_Project_1_Class.xlsx Task 3: Use the case as a guide for scenarios. Do not just randomly make scenarios. Submission Instructions:You should submit your completed work in a Word document and Excel file. M7 Project 1. class. xlsx Chang Dental Clinic Exhibit 1 INCOME STATEMENTS For the year ended December 31 2005. 2004. 2003. 2005 2004. 2003 FEE REVENUE $812,987 $600,308 $287,281 g. 35.4% 109.0% OPERATING EXPENSES: Associate fees 166,727 106,486 40,098 0.205 0.177 0.140 Salaries and benefits 127,703 93,868 39,008 Dental supplies. 62,715 40,508 26,291. 0.077. 0.067 0.092 Equipment leasing 52,582 52,582 19,456 $387,00810-yearcapital of leases Rent and utilities 42,441 38,500. 29,428 Laboratory fees 21,626 10,636 186 0.027. 0.018. 0.001 General and Office 17,420 14,193 9,051 Promotion and Entertainment 10,775 8,172 794 Automobile expenses. 5,104. 3,677. 1,337 Telephone 11,187 1,251. 4,697 Professional fees. 5,910 3,294. 5,755 Interest and bank charge 5,630. 7,015. 13,579 Professional development 2,913 406 2,021 Insurance 2,778 1,612 849 Licenses, fees and dues. 1,843 2,685. 1,282 Bed debts (recovered). (3,647) 17,939 339 Amortization. 14,872 10,484. 8,687 0.309 0.263 0.232 v TOTAL EXPENSES 548,579 413,308 202,858 368,074 F includes draw NET INCOME. $264,408 $187,000 $84,423 Cash operating costs $191,324 $116,919 $42,701 Chang Dental Clinic Exhibit 2 BALANCE SHEET As of December 31 2005 2004 2003 ASSETS Current assets. Cash. $4,067. $. $ Accounts receivable 46,942 41,248 29,528 0.058 0.069 0.103 Inventory. 6,366 5,296 2,677 0.008 0.009. 0.009 Prepaid expenses 1,646. - - -- Total Current Assets 59,021 46,544. 32,205 Long-term Assets Fixed assets $69,834 $60,625 $36,408 9209 24217 Less: Accumulated amortization. fixed assets (30,595) (19,171) (8,687) Net fixed assets 39,239 41,454. 27,721 0.022 c-factor Goodwill 1 1 1 Total Long-term Assets 39,240 41,455 27,722 TOTAL ASSETS $98,261. $87,999 $59,927 LIABILITIES AND OWNER'S EQUITY Liabilities Bank indebtedness $ $39. $8,201 Accounts payable 10,929 10,724 8,173. 0.013. 0.018 0.028 Total Liabilities 10,929 10,763 16,374 0.052 0.060 0.084 w-factor OWNER'S EQUITY S. Chang, Capital. 87,332 77,236 43,553 TOTAL LIABILITIES AND OWNER'S EQUITY $98,261 $87,999 $59,927 Chang Dental Clinic Valuation Dollar amounts in $1,000s 2005 2006. 2007 2008 2009 2010 2011 2012 2013 2014 2015 0 1 2 3 4 5 6 7 8 9 10 S(1-t) 669.9 729.2 761.5 784.4 807.9 832.1 857.1 882.8 909.3 936.6 vS(1-t) -206.9 -225.2 -235.2 -242.2. -249.5 -257.0 -264.7 -272.6 -280.8 -289.2 F(1-t). -265.4 -273.3. -281.5 -290.0 -298. -307.6 -316.9 -326.4 -336.2. -346.3 Dt. 3.5 3.6 3.7 3.9 4.0 4.1 4.2 4.3 4.5 4.6 Dwc. -4.4 -2.4 -1.7 -1.7 -1.8 -1.9 -1.9 -2.0 -2.0. -2.1 C [repl]. -11.8 -12.1 -12.5. -12.9 -13.2. -13.6 -14.1 -14.5 -14.9. -15.4 C [expansion] -1.9. -1.0 -0.7 -0.7 -0.8. -0.8 -0.8 -0.8 -0.9 -0.9 Continuing Value 2,466.6 -------- --------- -------- ------- ------- ------ ------- ------- ------- ------ -------- Net result oper CF. 0 183.1 218.8 233.7 240.7 247.9 255.3 263.0 270.9 279.0 2754.0 PV factor @ 15.00% 1.000 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 -------- -------- --------- ------ --------- --------- -------- ------- --------- -------- PVs. 0.0. 159.3 165.4 153.6 137.6 123.2 110.4 98.9 88.5 79.3 680.7 Value 1797.0 Debt. 0.0 Leases. 387.0 Equity 1410.0 t 0.30 v 0.309 F 368.1 Creplace. 11.4 w 0.052 c 0.0219 GROWTH 0.177 0.089 0.044. 0.03 0.03 0.03 0.03 0.030 0.03 0.03 0.03 0.030 0.03 INFLATOR 0.030 0 .030 0.030 0.03 0.030. 0.030 0.030 0.030 0.030 0.030 0.030 SALES 813.0 957.0 1041.8 1087.9 1120.5 1154.2 1188.8 1224.4 1261.2 1299.0 1338.0 Base_Case: Buyer's Assumptions; tradtional analysis [1] use 10 years on basis of loan life and equipment life [2] half of previous year's growth rate until normalization [3] historical cost of Associates Service of Financing Beginning debt 320.0 288.0 256.0 224.0 192.0 160.0 128.0 96.0 64.0 32.0 0.0 Interest payments 19.2 17.3 15.4 13.4 11.5 9.6 7.7 5.8 3.8 1.9 Principal payments. 32.0 32.0 32.0 32.0 32.0 32.0 32.0 32.0 32.0 32.0 Other bank charges. 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Lease payments 52.6 54.2 55.8 57.5 59.2 61.0 62.8 64.7 66.6 68.6 Total service. 103.8 103.4 103.1 102.9 102.7 102.6 102.5 102.4 102.5 102.5 Tax shields 21.5 21.4 21.3 21.3 21.2 21.2 21.1 21.1 21.1 21.2 Operating cash flow 183.1 218.8 233.7 240.7 247.9 255.3 263.0 270.9 279.0 287.4