Using the information in the University of Virginia Health Services case exhibits, complete the cash flow projections. What are the conclusions of the NPV and IRR of these cash flows?
Assumptions Number of Beds 50 Year 1 Utilization 26% Year 2 Utilization 60% Utilization Increase after Year 2 4% Commercial Payer Mix 24% $2,800 Commercial Payer Billing per Day Operating Variable Expense 8.5% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 VOLUME Patlent Day Capacity 18,250 18,250 18,250 18,250 18.250 18,250 18,250 18,250 18,250 18,250 Utilizatlon 26% 60% 64% 68% 72% 76% 80% 84% 88% 90% Patlent Days Used Average Patlent Census per Day Average Length of Stay Number of Patlents per Year Full-Time Employees/Census Full-Time Employees 4,745 10,950 11,680 12,410 13,140 13,870 14,600 15,330 16,060 16,425 13 30 32 34 36 38 40 42 44 45 30 27 27 27 27 27 27 27 27 27 158 406 433 460 487 514 541 568 595 608 4.8 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 62 105 112 119 126 133 140 147 154 158 Annual INSURANCE PAYERS Billing Rate MIX Increase $27,795 $35,000 $2,800 $38.500 $35,000 Medicare 36% 0.0% per case Medicald 29% 1,3% per case Commerclal Payers per day per case 24% 5.0% Other 9% 1.3% 1.3% Indigent 2% per case EXPENSES Annual Increase Salary, Wage, Benefits Supplles, Drugs, Food Management Fees Operating Expenses (fixed) Operating Expenses (varlable) Land Lease (annual rate) $65,250 3% per FTE 19.3% of net rev NAp. N.Ap N.Ap N.Ap. 9.0% of net rev $1,200,000 8.5% of net rev $200,000 3% $15,000,000 Construction NAp. Health Universal Community Management Health Triad Hospitals HCA Inc Health Associates Manor Care Services Revenues (millions) $24,475 $3,720 $3,580 $3,375 $4,805 $4,030 Assets (millions) Total debt (millions) Stock price ($/share) $5,222 $961 $997 $693 $1,458 $775 $9,278 $1,810 $1,014 $857 $1,703 $532 $52.12 $39.73 $23.25 $39.49 $41.46 $49.03 Shares outstanding (millions) Market cap (millions) 452.7 247.2 88.5 78,7 84.8 54,6 $23,593 $3,517 $5,747 $3,108 $3,517 $2,676 Bond rating A B BB BB BB Beta 0.60 0.60 0.70 0.80 0.60 0.60 HCA Inc.-hospital management company; manages hospitals mainly in the Southeast and Texas Community Health-operates general acute care hospitals in nonurban communities Health Management Associates, Inc.-provides a range of general an acute care health services in nonurban communities. Manor Care-provider of health services with broad capabilities; operates skilled nursing facilities, subacute medical and rehabilitation units, out- patient rehab clinics, assisted living facilities, and acute care hospitals. Triad Hospitals-owns and manages health care facilities including hospitals and ambulatory surgery centers. Universal Health Services-owns and operates acute care and surgical hospitals, behavioral health centers, and surgery and radiation oncology centers U.S. Treasury Yields 4,77% 1-year 5-year 4,72% 4,72% 10-year 30-year 4,73% Corporate Bond Ylelds AAA 5.31% AA 5.38% A 5.45% 5.88% BBB BB 6.79% 7.57% Assumptions Number of Beds 50 Year 1 Utilization 26% Year 2 Utilization 60% Utilization Increase after Year 2 4% Commercial Payer Mix 24% $2,800 Commercial Payer Billing per Day Operating Variable Expense 8.5% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 VOLUME Patlent Day Capacity 18,250 18,250 18,250 18,250 18.250 18,250 18,250 18,250 18,250 18,250 Utilizatlon 26% 60% 64% 68% 72% 76% 80% 84% 88% 90% Patlent Days Used Average Patlent Census per Day Average Length of Stay Number of Patlents per Year Full-Time Employees/Census Full-Time Employees 4,745 10,950 11,680 12,410 13,140 13,870 14,600 15,330 16,060 16,425 13 30 32 34 36 38 40 42 44 45 30 27 27 27 27 27 27 27 27 27 158 406 433 460 487 514 541 568 595 608 4.8 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 62 105 112 119 126 133 140 147 154 158 Annual INSURANCE PAYERS Billing Rate MIX Increase $27,795 $35,000 $2,800 $38.500 $35,000 Medicare 36% 0.0% per case Medicald 29% 1,3% per case Commerclal Payers per day per case 24% 5.0% Other 9% 1.3% 1.3% Indigent 2% per case EXPENSES Annual Increase Salary, Wage, Benefits Supplles, Drugs, Food Management Fees Operating Expenses (fixed) Operating Expenses (varlable) Land Lease (annual rate) $65,250 3% per FTE 19.3% of net rev NAp. N.Ap N.Ap N.Ap. 9.0% of net rev $1,200,000 8.5% of net rev $200,000 3% $15,000,000 Construction NAp. Health Universal Community Management Health Triad Hospitals HCA Inc Health Associates Manor Care Services Revenues (millions) $24,475 $3,720 $3,580 $3,375 $4,805 $4,030 Assets (millions) Total debt (millions) Stock price ($/share) $5,222 $961 $997 $693 $1,458 $775 $9,278 $1,810 $1,014 $857 $1,703 $532 $52.12 $39.73 $23.25 $39.49 $41.46 $49.03 Shares outstanding (millions) Market cap (millions) 452.7 247.2 88.5 78,7 84.8 54,6 $23,593 $3,517 $5,747 $3,108 $3,517 $2,676 Bond rating A B BB BB BB Beta 0.60 0.60 0.70 0.80 0.60 0.60 HCA Inc.-hospital management company; manages hospitals mainly in the Southeast and Texas Community Health-operates general acute care hospitals in nonurban communities Health Management Associates, Inc.-provides a range of general an acute care health services in nonurban communities. Manor Care-provider of health services with broad capabilities; operates skilled nursing facilities, subacute medical and rehabilitation units, out- patient rehab clinics, assisted living facilities, and acute care hospitals. Triad Hospitals-owns and manages health care facilities including hospitals and ambulatory surgery centers. Universal Health Services-owns and operates acute care and surgical hospitals, behavioral health centers, and surgery and radiation oncology centers U.S. Treasury Yields 4,77% 1-year 5-year 4,72% 4,72% 10-year 30-year 4,73% Corporate Bond Ylelds AAA 5.31% AA 5.38% A 5.45% 5.88% BBB BB 6.79% 7.57%
