Problem
You are the head of strategic planning at a for-profit hospital company. Your responsibilities include acquisitions of hospitals for the company. Your company is interested in acquiring a for-profit hospital in a market in which you currently own two other hospitals. You gather with your analysts to assess what your company should be willing to pay for the hospital. Your analysts assemble a modified cash flow information about the target hospital's performance during the last three years (presented in the table below).
You believe that the target hospital will benefit from the acquisition strategically. Make assumptions about these strategic benefits and how they translate into financial projections for cash flow for the target hospital in 2020 and 2021. Fill in values for all line items in the table accordingly. Briefly describe line items you believe will be affected and by how much. Be prepared to justify how you arrived at these numbers.
Once you have completed the table, compute a value for the target hospital (based just on the information you have) by assuming a weighted average cost of capital for your company of 10% and a terminal value of $50 million.