Part I: Compute the worth of Arcadia Hospital in 2005 using rules of thumb, adjusted book value, and discounted cash flow valuation (for this final method, use the table provided). Assume the cash flow for 2005 is the same as 2006.

1) Rules of thumb:
2) Adjusted book value:
3) Discounted cash flow:

Cash Flow amount
Capitalization Rate
Value
6%
8%
10%
12%

Part II: Compare your findings for each valuation method, and discuss any differences or similarities between the calculated values. What method do you think gives the most accurate picture of the worth of Arcadia in 2005? Explain your answer.

Arcadia Hospital
Statement of Cash Flows-Indirect Method
YE December 31, 2006
(Dollars in Millions)
$ %
Net Income from Operations 55 -12.36%
Add: Deprec / Amort 100 -22.47%
Equals Adjusted Net Income 155 -34.83%

Plus Other Operating Sources/(Uses) of Cash:
Short Term Investments 0 0.00%
Accounts Receivable 300 -67.42%
Inventory 0 0.00%
Prepaids 0 0.00%
Accounts Payable 100 -22.47%
Other Current Liabilities 100 -22.47%
Subtotal Sources/(Uses) of Cash 500 -112.36%

Net Cash Flow from Operations 655 -147.19%

Purchase of Equipment (1,000) 224.72%

Payments on Bonds payable (100) 22.47%

Net Increase/(Decrease) in Cash (445) 100.00%


Cash Account Beginning Balance 100

Cash Account Ending Balance (345)

Net Increase/(Decrease) in Cash (445)

If you were trying to "cut and paste" it does not work here. You must type everything out.

Sra

Axia assignment. Read ch 6 & 7 and refer to appendix C and Arcadia worksheet. The answer is there.

To compute the worth of Arcadia Hospital in 2005 using the different valuation methods, we will go through each method and explain the steps involved.

1) Rules of Thumb:
The rules of thumb method is a quick and simple way to estimate the worth of a company based on industry benchmarks. This method relies on common ratios or multiples used in the industry to give a rough estimate of the company's value. Without further information provided, it is difficult to provide specific rules of thumb for Arcadia Hospital.

2) Adjusted Book Value:
The adjusted book value method calculates the worth of a company based on its net asset value adjusted for various factors. To calculate the adjusted book value, we need the net asset value of Arcadia Hospital and the adjustments to be made. Unfortunately, the net asset value is not explicitly provided in the given information.

3) Discounted Cash Flow (DCF) Valuation:
Discounted cash flow valuation is a method that calculates the worth of a company by estimating the present value of its future cash flows. It is a more detailed and accurate method but requires more information and assumptions. The table provided gives the cash flow amount and the discount rates for different years.

To calculate the worth of Arcadia Hospital using DCF valuation, we need the estimated cash flows for the years between 2005 and 2006. The given information states that the cash flow for 2005 is the same as 2006, so we can use the cash flow amount for 2006.

The formula to calculate the present value of cash flows using DCF valuation is:
Value = Cash Flow amount / (1 + Discount Rate)^N

Where:
- Cash Flow amount is the estimated cash flow for the year
- Discount Rate is the rate of return expected from the investment
- N is the number of years in the future

Using the table provided, we can calculate the worth of Arcadia Hospital in 2005 by using the cash flow amount for 2006 and the discount rates provided.

Part II: Comparing the valuation methods and determining accuracy:
Without specific values for the rules of thumb method and adjusted book value method, it is difficult to compare the calculated values and determine accuracy. However, generally, the discounted cash flow valuation method is considered more accurate as it takes into account the future cash flows and the time value of money.

Discounted cash flow valuation considers the timing and risk associated with the cash flows, making it a comprehensive valuation method. However, it heavily relies on the accuracy of cash flow projections and assumptions made for the discount rates.

To determine the most accurate method for the worth of Arcadia Hospital in 2005, a deeper analysis and more specific data would be required.