Question seven and eight, please

Value according to DCF method $81.349 Value according to market multiple method: Applied to 2014 EBITDA $68 839 Applied to average 2014-2018 EBITDA $81 349 Applied to number of discharges $7 454 Sensitivity of DCF Value to Terminal Growth Rate and Discount Rate Estimates Discount Rate $81.349 12% 13% 14% 15% 16% 17% 18% 1% $89.568 $80.616 $73.110 $66.736 $61.266 $56.526 $52 385 TV $97.140 $86 712 $78 089 $70 858 $64.716 $50.443 $54.873 Growth 38% $106.412 $94 027 $83 974 $75.666 $68.697 $62.777 $57.693 Rate $117.993 $102 967 $91 036 $81 349 $73.342 $66.624 $60.915 $132.882 $114.143 $99 667 $88.168 $78.832 $71.112 $64.633 $152.734 $128.512 $110.456 $96.503 $85.419 $76.416 $68.971 $180.527 $147.671 $124 327 $106 922 $93.470 $82 781 $74.098 ENDINPUT DATA KEY OUTPUT (millions of $) (millions of $) Cash flow data: Pro forma (forecasted) net cash flows Growth in revenues (2018-2022): 2018 $5.418 2019 $5.645 Inpatient 5% Outpatient 10.00% 2020 $5.909 Nonoperating 5.00% 2021 $6.213 Patient services exp as a 2022 $130.602 % of net patient rev 8:8% Percent of net CF 2018 EBITDA $0.410 retained for growth 50.00% Average 5-yr EBITDA $9.949 Annual inputs "Interest on Interest on ."Cost Saving Acquisition value Year Current Debt Required Loans all Acquirer 2018 50.000 $3.000 50.000 DCF method $81.349 2019 $0.500 $3.000 $0.000 Market multiple method: 2020 $1.000 $3.000 $0.000 Applied to 2014 EBITDA $68.833 2021 $1.500 $3.000 50.000 Applied to avg EBITDA $81.349 2022 $2.000 $3.000 $0.000 Applied to discharges $7,454 Long-term (2019 and beyond) "Interest on Lafayette General's current debt. constant growth rate 4.00% "Interest on any borrowings required to expand Market data the asset base or to fund the acquisition. Discount rate (cost of equity) 15.00% EBITDA multiple 8.177 .Cost savings at St. Benedict's due to any Market value to discharges ratio $621.13 synergistic benefits that will accrue at the acquirer as opposed to at the target. Operating data: Expected number of discharges 12,000 HISTORICAL DATA: Lafayette General Hospital Historical Income Statements: (Millions of Dollars) 2013 2014 2015 2016 2017 Inpatient revenue $42 472 $46.014 $53.410 $58.650 $59.513 Outpatient revenue 28.314 30.676 35.606 39.100 39.675 Net patient service revenue $70.786 $76.690 $89.016 597.750 $99.188 Nonoperating revenue 1.922 1.515 1.367 1.725 1.048 Total revenues $72 708 $78 205 $90.383 $99.475 $100 236 Patient services expenses $60.245 $73.856 $81.525 $90.645 $89.505 3.045 3.147 3.093 3.002 2 980 Interest expense Depreciation 3.466 3 689 4.395 1.258 5.031 Total expenses $66.756 $80 694 $89.013 $97.905 $98.516 $5.952 ($2 489) $1.370 $1.570 Net income $1.720MODEL-GENERATED DATA: Lafayette General Hospital Pro Forma (Forecasted) Cash Flow Statements: (Millions of Dollars) 2018 2019 2020 2021 2022 Inpatient revenue $62.488 $65.613 $68.894 $72.338 $75.955 Outpatient revenue 43.643 48.007 52.808 56.086 63.897 Net patient service revenue $106.131 $113.620 $121.701 $130.427 $139.852 Nonoperating revenue 1.100 1.155 1.213 1.274 1.339 Total revenues $107.232 $114.775 $122.914 $131.700 $141.190 Patient services expenses $93.40 $99.99 $107.10 $114.78 $123.07 Interest expense 3.000 3.500 4.000 4.500 5.000 Total expenses $96.395 $103.485 $111.097 $119.275 $128.070 Net operating cash flow $10.836 $11.290 $11 817 $12.425 $13.120 Cost savings at teaching (other) hospital 0.000 0.000 0.000 0.000 0.000 Growth retentions (5.418) (5.645) (5.909) (6.213) (6.560) Terminal value 124.042 Net cash flow to equityholders $5.418 $5.645 $5.909 $6.213 $130.602 EBITDA $8.418 $9.145 $9.909 $10.713 $11.560 Average 5-year EBITDA $9.949Question 7 Assume that Hospital Associates of America (HAA) conducted a valuation of Lafayette General Hospital. a. Would HAA place a higher, lower, or about the same value on Lafayette General than would St. Benedict's? Justify your answer. b. Would the degree of interest exhibited by HAA in acquiring Lafayette General influence the amount of St. Benedict's initial offer? Question 8 How much external financing would St. Benedict's have to arrange to pay for the acquisition? (Hint: Consider the amount of excess cash on hand first. See exhibit 30.4 for guidance.) What types of securities and maturity structure should be specified in the financing plan