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)
Tawanna -- you've posted this in the wrong forum!
The Jiskha Homework Help Forum has absolutely no connection with Axia College. We know nothing about HCA 270, Arcadia Hospital or your table.
If you're hoping for another Axia student to help you through Jiskha -- forget about it! It hasn't happened in the last couple of years -- and undoubtedly will not ever happen.
1) Rules of thumb: (Twice annual revenues) 1136 million
2) Adjusted book value: (owners’ equity) 7900 million
3) Discounted cash flow:
Cash Flow amount
Capitalization Rate
Value
655,000,000 6% 10917
8% 8187
10% 6550
12% 5458
1)Rules of thumb: (Twice annual revenues) 1136 million
2)Adjusted book value: (owners’ equity) 7900 million
3)Discounted cash flow:
Cash Flow amount
Capitalization Rate
Value
655,000,000 6% 10917
8% 8187
10% 6550
12% 5458
I need help understanding and the revenue variance analysis
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Giving the answers to the questions is cheating just as asking for the answers. These are evidently health care classes, I hope the students you give the answers to will not be taking care of you later.
To compute the worth of Arcadia Hospital in 2005 using different valuation methods, we will explore rules of thumb, adjusted book value, and discounted cash flow (DCF) valuation.
1. Rules of Thumb:
Rules of thumb provide quick estimates based on industry standards or ratios. For example, it is common to use a multiple of revenue or EBITDA (earnings before interest, taxes, depreciation, and amortization) to determine the worth of a hospital. Typically, these multiples range from 0.5 to 2 times revenue or 5 to 15 times EBITDA. To use this approach, we need to know the revenue or EBITDA figures for Arcadia Hospital in 2005. Let's assume the hospital's revenue for that year is $10 million:
Using a multiple of 0.5 to 2 times revenue, the estimated worth of the hospital would be between $5 million and $20 million, respectively.
2. Adjusted Book Value:
Adjusted book value considers the net asset value of a company by adjusting the book value of its assets and liabilities. In the case of a hospital, we might consider factors such as the age and condition of the buildings, equipment, and other assets. Additionally, we need to account for liabilities and outstanding debt. Since we don't have specific information on Arcadia Hospital's assets, liabilities, or debt, we'll skip this valuation approach.
3. Discounted Cash Flow (DCF) Valuation:
DCF valuation estimates the worth of a company based on the present value of its expected future cash flows. To calculate this, we need to forecast the hospital's cash flows for a certain period (e.g., 10 years) and determine a discount rate to account for the time value of money and the risk associated with the investment.
Here is a simplified example of how to calculate DCF:
Step 1: Forecast the cash flows:
Let's assume the projected annual cash flows for Arcadia Hospital in 2005 are as follows:
Year 1: $1 million
Year 2: $1.2 million
Year 3: $1.4 million
...
Year 10: $2 million
Step 2: Determine the discount rate:
The discount rate represents the rate of return required by an investor to compensate for the risk and time value of money. For simplicity, let's assume a discount rate of 10%.
Step 3: Calculate the present value of cash flows:
Using the discounted cash flow formula, we can calculate the present value (PV) of each year's cash flow and sum them up:
PV = CF / (1 + r)^n, where CF is the cash flow, r is the discount rate, and n is the number of years.
For example, the present value of the cash flow in Year 1 would be:
PV1 = $1 million / (1 + 0.10)^1 = $909,091
Perform the same calculation for each year's cash flow and sum them up to determine the total present value of the cash flows.
Step 4: Determine the terminal value:
To estimate the value beyond the forecasted period (Year 10), we determine the terminal value using a perpetual growth rate assumption. Let's assume a conservative growth rate of 2% and calculate the terminal value using the formula:
Terminal Value = CF10 * (1 + g) / (r - g), where CF10 is the cash flow in Year 10 and g is the perpetual growth rate.
Terminal Value = $2 million * (1 + 0.02) / (0.10 - 0.02) = $24 million
Step 5: Calculate the total value:
To calculate the total value, we add the present value of the cash flows (from Step 3) to the terminal value (from Step 4).
Total Value = Present Value of Cash Flows + Terminal Value
It's important to note that the accuracy of the DCF valuation heavily relies on the accuracy of the cash flow projections, discount rate, and growth rate assumptions.
Remember, without specific financial and operational information about Arcadia Hospital, these calculations are purely illustrative and should not be considered accurate representations of its actual worth in 2005.