User Account

All Pages

What is the equity value of the hmo

Assignment Help Financial Management
Reference no: EM13197822

Assume that you have been asked to place a value on the fund capital (equity) of BestHealth, a not-for-profit HMO. Its projected profit and loss statements and retention requirements are shown below (in millions):

Year 1 Year 2 Year 3 Year 4 Year 5
Net revenues
$50.0 $52.0 $54.0 $57.0 $60.0
Cash expenses
$45.0 $46.0 $47.0 $48.0 $49.0
Depreciation
$3.0 $3.0 $4.0 $4.0 $4.0
Interest

$1.5 $1.5 $2.0 $2.0 $2.5
Net profit

$0.5 $1.5 $1.0 $3.0 $4.5
Estimated retentions
$1.0 $1.0 $1.0 $1.0 $1.0

The cost of equity of similar for-profit HMO's is 14 percent, while BestHealth's cost of debt is 5 percent. Its current capital structure is 60 percent debt and 40 percent equity. The best estimate for BestHealth's long-term growth rate is 5 percent. Furthermore, the HMO currently has $30 million in debt outstanding.

a. What is the equity value of the HMO using the Free Operating Cash Flow (FCOF) method?

b. Suppose that it was not necessary to retain any of the operating income in the business. What impact would this change have on the equity value according to the FOCF method?

Reference no: EM13197822

Questions Cloud

Explain what role does behavior play in learning : What is learning? What role does behavior play in learning? Write a 700- to 1,050-word paper in which you examine the concept of learning and how it is related to cognition. In your examination, address the following questions
Explain each component of meal originate : Where did each component of your meal originate? List the country that each part of your meal came from. (i.e., Did that glass of red wine come from Australia? Is the cheese from France?)
The economic term for productive resources : What is the economic term for productive resources that provide a means for society to produce and distribute its goods.
Give some real life example of a market : Which is a real life example of a market that is close to perfect competition. computer monopoly, an oil and gas cartel or else.
What is the equity value of the hmo : What is the equity value of the HMO using the Free Operating Cash Flow (FCOF) method and what impact would this change have on the equity value according to the FOCF method?
Describe the major phases of statistics : Describe the major phases of statistics. Formulate a business problem and analyse it by applying these phases?
Compare the functions given below by graphing : Compare the functions given below by graphing both functions in several viewing rectangles. For what values of x does the graph of g finally surpass the graph of f ? (Give your answer correct to 1 decimal place.)
Explain what each of these term mean in statistical analysis : Explain what each of these terms mean in statistical analysis. Describe how these two coefficients differ. Conclude by stating which coefficient you believe is most useful in describing relationships between research variables.
What is the area of the bakyard interms of x : the length of a rectangular backyard is 13 feet longer than its width (x). what is the area of the bakyard interms of x?

Reviews

Write a Review

Financial Management Questions & Answers

  Calculate the internal rate of return

Calculate the Internal Rate of return for both projects and again recommend which of the two projects, if any, should be selected based on this information.

  Evaluate the principal

What is the principal for first year

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  How do they earn their return on equity

Different companies have different financial ratios. So Return on Equity for any one company is the product of three ratios which may be quite different in value than the same three ratios for a different company.

  What is the expected return on the market

What is the expected return on the market and What is the risk-free rate?

  Runge-kutta method

Use Runge-Kutta method to answer the solution.

  Evaluation of the models and concepts

Prepare a report on evaluation of the models and concepts proposed outlining their limitations and merits.

  Prepare a business plan

Prepare a business plan that would be useful for launching your product and obtaining financial and managerial support from potential backers.

  Compute the cost of equity financing

This assignment shows how to Compute the cost of equity financing and aslo Compute the Weighted Average Cost of Capital.

  A synthesis of contemporary market orientation perspectives

A synthesis of contemporary market orientation perspectives

  Financial management and markets

Issue new stock, then use some of the proceeds to purchase additional inventory and hold the remainder as cash.

  Wal-mart company financial analysis

Wal-Mart company Financial analysis

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd