There are two hospitals that currently operate autonomously but are in reasonably close proximity to each other in a mid-sized metropolitan area of about 300,000 persons. The hospitals are 285 bed St. Anywhere Medical Center and nearby 53 bed Community Hospital. You will see from review of the attached financial statements that Community Hospital is in some difficulty. You may assume that the current financials have been the same for the past three (3) years. Also assume that St. Anywhere is part of a large, nonprofit multi-hospital organization and would like to acquire Community in a purchase transaction. The governing board at Community is willing to entertain such negotiations at the right price. So from a finance perspective, discuss the following issues:

Again assuming that St. Anywhere does acquire Community, how would you propose structuring the merger/acquisition? What would be the valuation of the transaction? PLEASE GIVE A PRICE AND EXPLANATION ON HOW YOU REACHED THAT PRICE Are there any other key deal points you would propose? Attached are the financial statements for both hospitals. What do you think?

B F A C D E 1 Operating Statistics for Both Hospitals 2 3 Community Hospital 4 Service Beds Bed Days Available Inpatient Days Discharges 5 Adults & Peds 33 8,085 3,354 2,114 6 ICU 12 2,940 1,256 7 Nursery 642 8 Observation Days 400 9 Labor & Delivery Days 8 1,960 783 367 110 Grand Total 53 12,985 6,435 2,481 11 12 St Anywhere Medical Center 13 Service Beds Bed Days Available Inpatient Days Discharges 114 Adults & Peds 202 73,932 45,168 12,554 15 ICU 32 11,712 8,241 16 CCU 27 9,882 4,201 17 Inpatient Rehab 24 8,784 5,113 414 18 Observation Days 3,441 19 Grand Total 285 104,310 66,164 12,968 20 21 22 B 2,728,556 72,509,189 246,935,626 10,022,052 3,400,660 335,596,083 317,543,430 3,631,220 656,770,733 A 1 St. Anywhere Balance Sheet 2 3 Cash 4 Accounts Receivable 5 Other Receivables 6 Inventory 7 Prepaid Expenses 7 8 Total Current Assets 9 Net Fixed Assets 10 Other Assets 11 Total Assets 12 13 Accounts Payable 14 Salaries Payable 15 Other Current Liabilities 16 Total Current Liabilities 17 Total Long Term Liabilities 18 Total Liabilities 19 Fund Balance 20 Total Liabilities and Fund Balance 21 22 23 24 9,971,076 13,857,110 19,229,050 43,057,236 25,821,639 68,878,875 587,891,858 656,770,733 G I A B D E F G . 1 1 St. Anywhere Income Statement 2 3 4 Revenue Center Inpatient Outpatient Total 5 Adult & Peds 149,159,340 149, 159,340 6 ICU 43,914,446 43,914,446 7 CCU 17,032,057 17,032,057 8 Ancillary Services 422,193,306 352,566,209 774,759,515 9 Outpatient Services 30,416,844 84,258,125 114,674,969 10 Ambulance 8,250 29,393,460 29,401,710 11 Total Gross Revenues 662,724,243 466,217,794 1,128,942,037 12 13 Net Patient Revenues 450,598,837 14 Total Operating Expenses 446,371,478 Includes $21,367,042 in depreciation 15 Operating Income 4,227,359 16 17 Non-Operating Income 49,896,303 A compendium of investment income, donations, and a $12,000,000 logal government subsidy for indigent care 18 Net Income 54,123,662 19 20 21 22 23 B D 2,594,112 2,253,906 15,294,867 1,970,819 2,882,538 778,052 25,774,294 81,616,659 350,109 107,741,062 3 Cash 4 Notes Receivable 5 Accounts Receivable 6 Other Receivables 7 Inventory 8 Other Current Assets 9 Total Current Assets 10 Net Fixed Assets 11 Other Assets 12 Total Assets 13 14 Accounts Payable 15 Salaries Payable 16 Notes Payable 17 Other Current Liabilities 18 Total Current Liabilities 19 Total Long Term Liabilities 20 Total Liabilities 21 Fund Balance 22 Total Liabilities and Fund Balance 23 24 25 5,720,259 3,328,325 2,154,642 2,211,196 13,414,422 69,361,091 82,775,513 24,965,549 107,741,062 E F A B D 1 Community Hospital Income Statement 2 3 Revenue Center Inpatient Outpatient Total 4 Adult & Peds 15,632,010 15,632,010 5 ICU 5,261,336 5,261,336 6 Ancillary Services 41,574,230 113,374,207 154,948,437 7 Outpatient Services 2,481,755 13,592,179 16,073,934 8 Home Health Agency 443,545 443,545 9 Total Gross Revenues 64,949,331 127,409,931 192,359,262 10 11 Net Patient Revenues 78,381,531 12 Total Operating Expenses 85,170,122 Includes $6,042,832 in depreciation 13 Operating Income (6,788,591) 14 15 Donations 146 16 Investment Income 192,931 17 Government Subsidies 2,000,000 Local government indigent care subsidy 18 Non-Operating Income 751,797 19 Net Income (3,843,717) 20 21 22 23 B F A C D E 1 Operating Statistics for Both Hospitals 2 3 Community Hospital 4 Service Beds Bed Days Available Inpatient Days Discharges 5 Adults & Peds 33 8,085 3,354 2,114 6 ICU 12 2,940 1,256 7 Nursery 642 8 Observation Days 400 9 Labor & Delivery Days 8 1,960 783 367 110 Grand Total 53 12,985 6,435 2,481 11 12 St Anywhere Medical Center 13 Service Beds Bed Days Available Inpatient Days Discharges 114 Adults & Peds 202 73,932 45,168 12,554 15 ICU 32 11,712 8,241 16 CCU 27 9,882 4,201 17 Inpatient Rehab 24 8,784 5,113 414 18 Observation Days 3,441 19 Grand Total 285 104,310 66,164 12,968 20 21 22 B 2,728,556 72,509,189 246,935,626 10,022,052 3,400,660 335,596,083 317,543,430 3,631,220 656,770,733 A 1 St. Anywhere Balance Sheet 2 3 Cash 4 Accounts Receivable 5 Other Receivables 6 Inventory 7 Prepaid Expenses 7 8 Total Current Assets 9 Net Fixed Assets 10 Other Assets 11 Total Assets 12 13 Accounts Payable 14 Salaries Payable 15 Other Current Liabilities 16 Total Current Liabilities 17 Total Long Term Liabilities 18 Total Liabilities 19 Fund Balance 20 Total Liabilities and Fund Balance 21 22 23 24 9,971,076 13,857,110 19,229,050 43,057,236 25,821,639 68,878,875 587,891,858 656,770,733 G I A B D E F G . 1 1 St. Anywhere Income Statement 2 3 4 Revenue Center Inpatient Outpatient Total 5 Adult & Peds 149,159,340 149, 159,340 6 ICU 43,914,446 43,914,446 7 CCU 17,032,057 17,032,057 8 Ancillary Services 422,193,306 352,566,209 774,759,515 9 Outpatient Services 30,416,844 84,258,125 114,674,969 10 Ambulance 8,250 29,393,460 29,401,710 11 Total Gross Revenues 662,724,243 466,217,794 1,128,942,037 12 13 Net Patient Revenues 450,598,837 14 Total Operating Expenses 446,371,478 Includes $21,367,042 in depreciation 15 Operating Income 4,227,359 16 17 Non-Operating Income 49,896,303 A compendium of investment income, donations, and a $12,000,000 logal government subsidy for indigent care 18 Net Income 54,123,662 19 20 21 22 23 B D 2,594,112 2,253,906 15,294,867 1,970,819 2,882,538 778,052 25,774,294 81,616,659 350,109 107,741,062 3 Cash 4 Notes Receivable 5 Accounts Receivable 6 Other Receivables 7 Inventory 8 Other Current Assets 9 Total Current Assets 10 Net Fixed Assets 11 Other Assets 12 Total Assets 13 14 Accounts Payable 15 Salaries Payable 16 Notes Payable 17 Other Current Liabilities 18 Total Current Liabilities 19 Total Long Term Liabilities 20 Total Liabilities 21 Fund Balance 22 Total Liabilities and Fund Balance 23 24 25 5,720,259 3,328,325 2,154,642 2,211,196 13,414,422 69,361,091 82,775,513 24,965,549 107,741,062 E F A B D 1 Community Hospital Income Statement 2 3 Revenue Center Inpatient Outpatient Total 4 Adult & Peds 15,632,010 15,632,010 5 ICU 5,261,336 5,261,336 6 Ancillary Services 41,574,230 113,374,207 154,948,437 7 Outpatient Services 2,481,755 13,592,179 16,073,934 8 Home Health Agency 443,545 443,545 9 Total Gross Revenues 64,949,331 127,409,931 192,359,262 10 11 Net Patient Revenues 78,381,531 12 Total Operating Expenses 85,170,122 Includes $6,042,832 in depreciation 13 Operating Income (6,788,591) 14 15 Donations 146 16 Investment Income 192,931 17 Government Subsidies 2,000,000 Local government indigent care subsidy 18 Non-Operating Income 751,797 19 Net Income (3,843,717) 20 21 22 23