Assume that the company was operating at full capacity in 2006 with regard to all items except fixed.
Question
| Florida Home Health is a small home care agency owned by a group practice of nurses and physical |
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| therapists in Tampa, Florida. During the past few years, the company reported the following revenues: |
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| Year | Revenues (000s) | ||||||||
| 2002 | $2,058 | ||||||||
| 2003 | $2,534 | ||||||||
| 2004 | $2,472 | ||||||||
| 2005 | $2,850 | ||||||||
| 2006 | $3,000 | ||||||||
| Use simple regression to predict Florida Home Healths 2007 revenue. | |||||||||
| Gainesville Surgicenter Inc. is a large, ambulatory surgery center owned by a group practice of surgeons |
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| in Gainesville, Florida. The 2006 financial statements for the firm are shown below: |
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| Balance Sheet as of December 31, 2006 (Thousands of dollars) |
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| Cash | $1,800 | Accounts payable | $7,200 | ||||||
| Receivables | $10,800 | Notes payable | $3,472 | ||||||
| Inventories | $12,600 | Accruals | $2,520 | ||||||
| Total current assets | $25,200 | Total current liabilities | $13,192 | ||||||
| Net fixed assets | $21,600 | Mortgage bonds | $5,000 | ||||||
| Common stock | $2,000 | ||||||||
| Retained earnings | $26,608 | ||||||||
| Total assets | $46,800 | Total liabilities & equity |
$46,800 | ||||||
| Income Statement for 2006 (Thousands of dollars) |
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| Revenues | $36,000 | ||||||||
| Operating costs | $30,783 | ||||||||
| Earnings before interest and taxes |
$5,217 | ||||||||
| Interest | $1,017 | ||||||||
| Earnings before taxes | $4,200 | ||||||||
| Taxes (40%) | $1,680 | ||||||||
| Net income | $2,520 | ||||||||
| Dividends (60%) | $1,512 | ||||||||
| Addition to retained earnings |
$1,008 | ||||||||
| a. Assume that the company was operating at full capacity in 2006 with regard to all items except fixed |
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| assets (operating rooms and support space); fixed assets in 2006 were utilized to only 75 percent of |
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| capacity. By what percentage could 2007 revenues increase over 2006 revenues without the need for an |
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| increase in fixed assets? | |||||||||
| b. Now suppose 2007 revenues increase by 25 percent over 2006 revenues. Use the constant growth |
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| method to develop a pro forma balance sheet and income statement as in Table 14.3. Assume that |
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| Gainesville cannot sell any fixed assets and that any financing required is borrowed as notes payable at |
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| an interest rate of 12 percent. |
Assume that the company was operating at full capacity in 2006 with regard to all items except fixed
