Problem 1 We will be predicting cash flows for two nonprofit hospitals, Bolder and Cowboy. You will forecast cash flows incorporate additional information that is not reflected in the historic data (i.e., statistical forcasting is often a good start, but managers can often anticipate events not reflected in historic data) Twenty-one quarters of historic cash flow data are proved for each hospital. Additional information for each hospital are provided below. Note that the cost of capital and long-term growth rates are both annual numbers and outstanding debt and all cash flows are in thousands of dollars. The cost of capital and long-term growth rate and outstanding debt (below and in the excel document) will be used in a later problem and aren't needed for these initial forecasts Boulder Hospital Cowboy Hospital Cost of capital LT growth rate Outstanding debt 8% 10% 2% 3% $80,000 $500,000 Boulder's information o The real value of their capital stock is lower than financial statements would suggest. The owner would need to spend an addition $80,000/year to address this problem. (Create a new line item called retentions and place this $80,000 in the retentions line. This could be defensibly placed in the "other costs" line item, but creating this separate line will make things a little easier when we turn this into a merger problem later.) o They plan to introduce a new service line. This investment is expected to increase revenues by 1% beginning at time 1 (the first forecasted quarter). This would require a $150,000 investment during the first quarter of the forecast (place this $150,000 in the retentions line) Cowboy hospital's private information o They realize that they could improve their charge capture. They could increase revenues by 1% beginning in year 2, but this would cost $100,000 (retentions) at time O o They engaged in fraudulent billing practices and expect to lose a $500,000 lawsuit in year 2 (retnetions). By the time the acquirer finds out the current CEO plans to be in a country without an extradition treaty You will notice that Boulder's historic depreciation cash flow looks odd. You must create an explanation for the observed pattern (nothing fancy, just a couple of sentences) and use a forecasting model that is consistent with your explanation. Problem 1 We will be predicting cash flows for two nonprofit hospitals, Bolder and Cowboy. You will forecast cash flows incorporate additional information that is not reflected in the historic data (i.e., statistical forcasting is often a good start, but managers can often anticipate events not reflected in historic data) Twenty-one quarters of historic cash flow data are proved for each hospital. Additional information for each hospital are provided below. Note that the cost of capital and long-term growth rates are both annual numbers and outstanding debt and all cash flows are in thousands of dollars. The cost of capital and long-term growth rate and outstanding debt (below and in the excel document) will be used in a later problem and aren't needed for these initial forecasts Boulder Hospital Cowboy Hospital Cost of capital LT growth rate Outstanding debt 8% 10% 2% 3% $80,000 $500,000 Boulder's information o The real value of their capital stock is lower than financial statements would suggest. The owner would need to spend an addition $80,000/year to address this problem. (Create a new line item called retentions and place this $80,000 in the retentions line. This could be defensibly placed in the "other costs" line item, but creating this separate line will make things a little easier when we turn this into a merger problem later.) o They plan to introduce a new service line. This investment is expected to increase revenues by 1% beginning at time 1 (the first forecasted quarter). This would require a $150,000 investment during the first quarter of the forecast (place this $150,000 in the retentions line) Cowboy hospital's private information o They realize that they could improve their charge capture. They could increase revenues by 1% beginning in year 2, but this would cost $100,000 (retentions) at time O o They engaged in fraudulent billing practices and expect to lose a $500,000 lawsuit in year 2 (retnetions). By the time the acquirer finds out the current CEO plans to be in a country without an extradition treaty You will notice that Boulder's historic depreciation cash flow looks odd. You must create an explanation for the observed pattern (nothing fancy, just a couple of sentences) and use a forecasting model that is consistent with your explanation