UNDERSTANDING HE HEALTHCARE FI FINANCIAL MA MANAGEMENT
5/1/10
Chapter 16 -- Bus!ess "a#uat$!% Mer&ers% a!' A()ust$!s *R+BLEM 1 Assu,e that $u ha.e ee! ee! ase' t$ p#a(e a .a#ue $! the $!ershp p$st$! p$st$! ! Brar$$' H$spta#2 H$spta#2 Its pr$3e(te' pr$4t a!' #$ss state,e!ts a!' rete!t$! re)ure,e!ts are sh$! e#$ ! ,##$!s7
Net re.e!ues Cash e>pe!ses Depre(at$! Ear!!&s e4$re !terest a!' ta>es I!terest Ear!!&s e4$re ta>es Ta>es ;0 per(e!t Net pr$4t Est,ate' rete!t$!s
8ear 1 8ear 9 8ear : 8ear ; 8ear 5 <99520 <9;020 <95020 <96020 <9=520 <90020 <90520 <91020 <91520 <99520 <1120 <1920 <1:20 <1;20 <1520 <1;20 <9:20 <9=20 <:120 <:520
<102?
<1926
<1520
<1020
<1020
<1020
<1020
<1020
Brar$$'s ($st $4 e)ut s 16 per(e!t% ts ($st $4 'et s 10 per(e!t% a!' ts $pt,a# (apta# stru(ture s ;0 per(e!t 'et a!' 60 per(e!t e)ut2 The est est,ate 4$r Brar$$'s #$!&-ter, &r$th rate s ; per(e!t2 Further,$re% the h$spta# (urre!t# has pe(te' #$!&-ter, &r$th rate as 6 per(e!t2 hat ,pa(t $u#' ths (ha!&e ha.e $! the e)ut .a#ue $4 the us!ess a(($r'!& t$ the F+CF ,eth$' hat 4 the &r$th rate ere $!# 9 per(e!t (2 hat s the e)ut .a#ue $4 the h$spta# us!& the Free Cash F#$ t$ E)uth#$'ers FCFE ,eth$' '2 Supp$se that the e>pe(te' #$!&-ter, &r$th rate as 6 per(e!t2 hat ,pa(t $u#' ths (ha!&e ha.e $! the e)ut .a#ue $4 the us!ess a(($r'!& t$ the FCFE FCFE ,eth$' ,eth$' hat 4 the &r$th rate ere $!# 9 per(e!t ANSER
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 16 -- Bus!ess "a#uat$!% Mer&ers% a!' A()ust$!s *R+BLEM 9 Assu,e that $u ha.e ee! ase' t$ p#a(e a .a#ue $! the 4u!' (apta# e)ut $4 BestHea#th% a !$t-4$r-pr$4t HM+2 Its pr$3e(te' pr$4t a!' #$ss state,e!ts a!' rete!t$! re)ure,e!ts are sh$! e#$ ! ,##$!s7
Net re.e!ues Cash e>pe!ses Depre(at$! I!terest
8ear 1 8ear 9 8ear : 8ear ; 8ear 5 <5020 <5920 <5;20 <5=20 <6020 <;520 <;620 <;=20 <;?20 <;@20 <:20 <:20 <;20 <;20 <;20 <125 <125 <920 <920 <925
Net pr$4t
<025
<125
<120
<:20
<;25
Est,ate' rete!t$!s
<120
<120
<120
<120
<120
The ($st $4 e)ut $4 s,#ar 4$r-pr$4t HM+s s 1; per(e!t% h#e BestHea#ths ($st $4 'et s 5 per(e!t2 Its (urre!t (apta# stru(ture s 60 per(e!t 'et a!' ;0 per(e!t e)ut2 The est est,ate 4$r BestHea#ths #$!&-ter, &r$th rate s 5 per(e!t2 Further,$re% the HM+ (urre!t# has <:0 ,##$! ! 'et $utsta!'!&2 a2 hat s the e)ut .a#ue $4 the HM+ us!& the Free +perat!& Cash F#$ F+CF ,eth$' 2 Supp$se that t as !$t !e(essar t$ reta! a! $4 the $perat!& !($,e ! the us!ess2 hat ,pa(t $u#' ths (ha!&e ha.e $! the e)ut .a#ue a(($r'!& t$ the F+CF ,eth$'
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 16 -- Bus!ess "a#uat$!% Mer&ers% a!' A()ust$!s *R+BLEM : C$#u,a H$,e Care I!(2 s ($!s'er!& a ,er&er th HCA H$,e Care I!(2 HCA s a pu#(# tra'e' ($,pa!% a!' ts (urre!t eta s 12:02 HCA has ee! are# pr$4ta#e a!' ha' pa' a! a.era&e $4 $!# 90 per(e!t ! ta>es 'ur!& the #ast se.era# ears2 I! a''t$!% t uses #tt#e 'et% ha.!& a 'et rat$ $4 3ust 95 per(e!t2 I4 the a()ust$! ere ,a'e% C$#u,a $u#' $perate HCA as a separate% h$## $!e' sus'ar2 C$#u,a $u#' pa ta>es $! a ($!s$#'ate' ass% a!' the ta> rate $u#' there4$re !(rease t$ :5 per(e!t2 C$#u,a a#s$ $u#' !(rease the 'et (apta#at$! ! the HCA sus'ar t$ ;0 per(e!t $4 assets% h(h $u#' !(rease ts eta t$ 12502 C$#u,a est,ates that HCA% 4 a()ure'% $u#' pr$'u(e the 4$##$!& !et (ash 4#$s t$ C$#u,as shareh$#'ers ! ,##$!s $4 '$##ars7 8ear 1 9 : ; 5 a!' e$!'
Free Cash F#$s t$ E)uth$#'ers <12:0 <1250 <12=5 <9200 C$!sta!t &r$th at 6
These (ash 4#$s !(#u'e a## a()ust$! e44e(ts2 C$#u,as ($st $4 e)ut s 1; per(e!t% ts eta s 120% a!' ts ($st $4 'et s 10 per(e!t2 The rs-4ree rate s ? per(e!t2 a2 hat 's($u!t rate sh$u#' e use' t$ 's($u!t the est,ate' (ash 4#$ H!t7 Use C$#u,as ($st $4 e)ut t$ 'eter,!e the ,aret rs pre,u,2 2 hat s the '$##ar .a#ue $4 HCA t$ C$#u,as shareh$#'ers ANSER
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 16 -- Bus!ess "a#uat$!% Mer&ers% a!' A()ust$!s *R+BLEM ; Hast!&s HM+ s !tereste' ! a()ur!& "a!'e##% a s,a##er HM+ ! ts ser.(e area2 "a!'e## has 1 ,##$! shares $utsta!'!& a!' a tar&et (apta# stru(ture ($!sst!& $4 :0 per(e!t 'et2 "a!'e##s 'et !terest rate s ? per(e!t2 Assu,e that the rs-4ree rate $4 !terest s 5 per(e!t a!' the ,aret rs pre,u, s 6 per(e!t2 B$th "a!'e## a!' Hast!&s 4a(e a ;0 per(e!t ta> rate2 "a!'e##s Free +perat!& Cash F#$ s <9 ,##$! per ear a!' s e>pe(te' t$ &r$ at a ($!sta!t rate $4 5 per(e!t a ear ts eta s 12;2 I4 "a!'e## has <102?9 ,##$! ! 'et% hat s the (urre!t .a#ue $4 "a!'e##s st$( hat pr(e per share sh$u#' Hast!&s ' 4$r ea(h share $4 "a!'e## ($,,$! st$( ANSER
