PROBLEM 9 You have been asked to place a value on the fund capital of BestCare, a not-for-profit chain of nursing homes. Your financial analyst has provided you with the following estimates for BestCare: Net revenue growth rate 3% Cash expenses growth rate 3% Estimated retention growth rate 10% Its projected profit and loss statements and retention requirements are shown below (in millions): 2007 2008 2009 2010 2011 Net revenues $100.00 $103.00 $106.09 $109.27 $112.55 Cash expenses $90.00 $92.70 $95.48 $98.35 $101.30 Depreciation $4.00 $4.00 $4.00 $4.00 $4.00 Interest $3.20 $3.20 $3.20 $3.20 $3.20 Net profit $2.80 $3.10 $3.41 $3.73 $4.06 Estimated retentions $6.00 $6.60 $7.26 $7.99 $8.78 The cost of equity of similar for-profit nursing home chains is 12 percent, while BestCare's cost of debt is 8 percent. Its current capital structure is 40 percent debt and 60 percent equity. The best estimate for BestCare's long-term growth rate is 3 percent. Furthermore, the chain currently has $40 million in debt outstanding. What is the fund capital value of BestCare using the free operating cash flow (FOCF) method?