Assume that you have been asked to place a value on the ownership position in Briarwood Hospital.
Its projected profit and loss statements and retention requirements are shown below (in millions):
Please see attached.
ertFormat Tools Table Window HelpOFinanceQues – Saved to my MacQ – 5LayoutReferencesMailingsReviewView9 Tell me whaA- A- Aa . AAaBbCcDdEeAaBbCcDdErAaBbCcDcAaBbCcDdEAaX’ A.Q . A . EAaBb(NormalNo SpacingHeading 1Heading 2TitleYear 1Year 2Year 3Year 4Year 5Net revenues$225.0$240.0$250.0$260.0$275.0Cash expenses5200.0$205.0$210.05215.0$225.0Depreciation$11.0$12.0$13.0$14.0515.0Earnings before interest and taxes$14.0$23.0527.0531.0535.0Interest58.059.0$9.0510.0510.0Earnings before taxes0’95514.0518.0521.0$25.0Taxes (40 percent)$2.4$5.6$7.258.4510.0Net profit53.6S8.4$10.8$12.6515.0Estimated retentions510.0510.0510.0$10.0510.0Briarwood’s cost of equity is 16 percent, its cost of debt is 10 percent, and its optimal capitalstructure is 40 percent debt and 60 percent equity. The best estimate for Briarwood’s long-termgrowth rate is 4 percent. Furthermore, the hospital currently has $80 million in debt outstanding.Ja. I need the equity value of the hospital using the free operating cash flow (FOCF) method.b. Suppose that the expected long-term growth rate was 6 percent. I need the impact/changethat would have on the equity value of the business according to the FOCF method. I need thegrowth rate if it were only 2 %.c. I need the equity value of the hospital using the free cash flow to equity holders (FCFE) method.d. Suppose that the expected long-term growth rate was 6 percent. I need the impact and changethat it wouldhave on the equity value of the business according to the FCFE yethod. I need thegrowth rate if it were only 2 %?Engman (United States
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