PARAPHRASE PLEASE IN 7 HOURS

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	This spreadsheet supports STUDENT analysis of the case “University of Virginia Health System: The Long-Term Acute Care Hospital Project” (Case 28)
	By: Nour Abdulaziz, Maryam Barifah, Balqees Mekhlafi, Shrouq Al-Jaaidi

&K000000Financial Policy &K00000015/04/18 &K000000By: Nour Abdulaziz, Maryam Barifah, Balqees Mekhlafi, Shrouq Al-Jaaidi

For-Profit Comparables (Ex 3)

For-Profit Comparables
	HCA Inc	Community Health	Health Management Associates	Manor Care	Triad Hospitals	Universal Health Services
Revenues (millions)	$24,475	$3,720	$3,580	$3,375	$4,805	$4,030
Assets (millions)	$5,222	$961	$997	$693	$1,458	$775
Total debt (millions)	$9,278	$1,810	$1,014	$857	$1,703	$532
Stock price ($/share)	$52.12	$39.73	$23.25	$39.49	$41.46	$49.03
Shares outstanding (millions)	452.7	88.5	247.2	78.7	84.8	54.6
Market cap (millions)	$23,593	$3,517	$5,747	$3,108	$3,517	$2,676
Bond rating	A	B	BB	BB	B	BB
Beta	0.60	0.60	0.70	0.80	0.60	0.60
· HCA Inc.—hospital management company; manages hospitals mainly in the Southeast and Texas.
· Community Health—operates general acute care hospitals in nonurban communities.
· Health Management Associates, Inc.—provides a range of general an acute care health services in nonurban communities.
· Manor Care—provider of health services with broad capabilities; operates skilled nursing facilities, subacute medical and rehabilitation units, outpatient rehab clinics, assisted living facilities, and acute care hospitals.
· Triad Hospitals—owns and manages health care facilities including hospitals and ambulatory surgery centers.
· Universal Health Services—owns and operates acute care and surgical hospitals, behavioral health centers, and surgery and radiation oncology centers.
Source: Value Line, December 2005.

Bonds & U.S. Treasuries (Ex 4)

	U.S. Treasury Yields
	1-year	4.77%
	5-year	4.72%
	10-year	4.72%
	30-year	4.73%
	Data source: http://federalreserve.gov/releases/h15/data.htm (accessed March 2006).
	Corporate Bond Yields
	AAA	5.31%
	AA	5.38%
	A+	5.41%
	A	5.45%
	A-	5.53%
	BBB+	5.62%
	BBB	5.88%
	BBB-	6.07%
	BB+	6.40%
	BB	6.79%
	BB-	6.96%
	B+	7.39%
	B	7.57%
	B-	7.84%
	Data source: Bloomberg, “Fair Market Curve Analysis,” 10-Year Corporate Bonds, March 2, 2006.

WACC

	Assumptions taken from hints:
	Market Risk Premium (MRP)	6%
	Risk Free Rate (Rf)	4.72%	The 10-year Treasury Yield
	Tax Rate	35%
	Tax Rate	0%
	HCA Inc.	Community Health	Health Management Associates	Manor Care	Triad Hospitals	Universal Health Services
Revenues (millions)	$24,475	$3,720	$3,580	$3,375	$4,805	$4,030
Assets (millions)	$5,222	$961	$997	$693	$1,458	$775
Total Debt (millions)	$9,278	$1,810	$1,014	$857	$1,703	$532
Stock Price ($/share)	$52.12	$39.73	$23.25	$39.49	$41.46	$49.03
Shares Outstanding (millions)	452.7	88.5	247.2	78.7	84.8	54.6
Market Cap (millions)	$23,593	$3,517	$5,747	$3,108	$3,517	$2,676
Bond Rating	A	B	BB	BB	B	BB
Beta	0.60	0.60	0.70	0.80	0.60	0.60
Weight of Debt (Wd)	28%	34%	15%	22%	33%	17%
Weight of Equity (We)	72%	66%	85%	78%	67%	83%
Cost of Debt	5.45%	7.57%	6.79%	6.79%	7.57%	6.79%
Cost of Equity	8.32%	8.32%	8.92%	9.52%	8.32%	8.32%
WACC @ 35% tax	6.97%	7.16%	8.24%	8.42%	7.21%	7.67%
WACC@ 0% tax	7.51%	8.06%	8.60%	8.93%	8.07%	8.07%
	Average of WACC
Tax @ 35%	7.61%
Tax @ 0%	8.21%

Financial Projections (Ex 2)

UNIVERSITY OF VIRGINIA MEDICAL CENTER: Long Term Acute Care Hospital: Financial Projections
	Assumptions
	Number of Beds	50
	Year 1 Utilization	26%
	Year 2 Utilization	60%
	Utilization Increase after Year 2	4%
	Commercial Payer Mix	24%
	Commercial Payer Billing per Day	$2,800
	Operating Variable Expense	7.0%
						1	2	3	4	5	6	7	8	9	10
						Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
VOLUME
	Patient Day Capacity					18,250	18,250	18,250	18,250	18,250	18,250	18,250	18,250	18,250	18,250
	Utilization					26%	60%	64%	68%	72%	76%	80%	84%	88%	90%
	Patient Days Used					4,745	10,950	11,680	12,410	13,140	13,870	14,600	15,330	16,060	16,425
	Average Patient Census per Day					13	30	32	34	36	38	40	42	44	45
	Average Length of Stay					30	27	27	27	27	27	27	27	27	27
	Number of Patients per Year					158	406	433	460	487	514	541	568	595	608
	Full-Time Employees/Census					4.8	3.5	3.5	3.5	3.5	3.5	3.5	3.5	3.5	3.5
	Full-Time Employees					62	105	112	119	126	133	140	147	154	158
INSURANCE PAYERS		MIX
	Medicare	36%				56.88	146.16	155.88	165.6	175.32	185.04	194.76	204.48	214.2	218.88
	Medicaid	29%				45.82	117.74	125.57	133.4	141.23	149.06	156.89	164.72	172.55	176.32
	Commercial Payers	24%				37.92	97.44	103.92	110.4	116.88	123.36	129.84	136.32	142.8	145.92
	Other	9%				14.22	36.54	38.97	41.4	43.83	46.26	48.69	51.12	53.55	54.72
	Indigent	2%				3.16	8.12	8.66	9.2	9.74	10.28	10.82	11.36	11.9	12.16
					Total	158.0	406.0	433.0	460.0	487.0	514.0	541.0	568.0	595.0	608.0
		Billing Rate		Annual Increase
	Medicare	$27,795	per case	0.0%		1580.98	4062.52	4332.68	4602.85	4,873.02	5,143.19	5,413.35	5,683.52	5,953.69	6083.77
		$35,000	per case	1.3%				4452.08		ERROR:#VALUE!
	Medicaid	$35,000	per day	1.3%		1603.70	4174.47	4452.08	4729.70	5,007.31	5,284.92	5,562.53	5,840.15	6,117.76	6251.43
	Commercial Payers	$2,800	per day	5.0%		3188.64	7726.32	8241.41	8756.50	9271.58	9786.67	10301.76	10816.85	11331.94	11589.48
	Other	$38,500	per case	1.3%		547.47	1425.08	1519.85	1614.62	1709.39	1804.16	1898.93	1993.71	2088.48	2134.11
	Indigent	35,000	per case	1.3%		110.60	287.89	307.04	326.19	345.33	364.48	383.62	402.77	421.91	431.13
					Total Revenue	7031.39	17676.28	18853.07	20029.85	21,206.64	22,383.42	23,560.21	24,736.99	25,913.78	26489.92
	Less: Uncollectable	1%				70.31	176.76	188.53	200.30	212.07	223.83	235.60	247.37	259.14	264.90
					Total Net Revenue	6961.08	17499.52	18664.54	19829.55	20,994.57	22,159.59	23,324.60	24,489.62	25,654.64	26225.02
	Expenses
					Annual Increase
	Salary, Wage, Benefits		$60,250	per FTE	3%	3,759.60	6,516.04	7,158.95	7,834.58	8,544.30	9,289.55	10,071.83	10,892.69	11,753.73	12,381.48
	Supplies, Drugs, Food		16.3%	of net rev	N.Ap.	1,134.66	2,852.42	3,042.32	3,232.22	3,422.11	3,612.01	3,801.91	3,991.81	4,181.71	4,274.68
	Management Fees		8.0%	of net rev	N.Ap.	556.89	1,399.96	1,493.16	1,586.36	1,679.57	1,772.77	1,865.97	1,959.17	2,052.37	2,098.00
	Operating Expenses (fixed)		$1,200,000		N.Ap.	1,200.00	1,200.00	1,200.00	1,200.00	1,200.00	1,200.00	1,200.00	1,200.00	1,200.00	1,200.00
	Operating Expenses (variable)		7%	of net rev	N.Ap.	487.28	1,224.97	1,306.52	1,388.07	1,469.62	1,551.17	1,632.72	1,714.27	1,795.82	1,835.75
	Land Lease (annual rate)		$200,000		3%	200.00	206.00	212.18	218.55	225.10	231.85	238.81	245.97	253.35	260.95
	Depreciation for construction		$15,000,000		N.Ap.	500.00	500.00	500.00	500.00	500.00	500.00	500.00	500.00	500.00	500.00
					Total Expenses	7,838.42	13,899.39	14,913.13	15,959.77	17,040.70	18,157.36	19,311.24	20,503.91	21,736.98	22,550.87
	Operating Profit					($807.03)	$3,776.89	$3,939.93	$4,070.08	$4,165.93	$4,226.06	$4,248.96	$4,233.08	$4,176.79	$3,939.05
	Operating Margin					-11.48%	21.37%	20.90%	20.32%	19.64%	18.88%	18.03%	17.11%	16.12%	14.87%
	Account Recievable (30 days)					$572.14	$1,438.32	$1,534.07	$1,629.83	$1,725.58	$1,821.34	$1,917.09	$2,012.85	$2,108.60	$2,155.48
	Inventory Supplies,Drugs,Food (60 days)					$186.52	$468.89	$500.11	$531.32	$562.54	$593.76	$624.97	$656.19	$687.40	$702.69
	Accounts Payable (30 days)					$93.26	$234.45	$250.05	$265.66	$281.27	$296.88	$312.49	$328.09	$343.70	$351.34
	Net Working Capital					$665.40	$1,672.76	$1,784.13	$1,895.49	$2,006.85	$2,118.21	$2,229.58	$2,340.94	$2,452.30	$2,506.82
	Change in Net Working Capital					$665.40	$1,007.36	$111.36	$111.36	$111.36	$111.36	$111.36	$111.36	$111.36	$54.52

Free Cash Flows

Free Cash Flows
	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
Operating Profit		($807.03)	$3,776.89	$3,939.93	$4,070.08	$4,165.93	$4,226.06	$4,248.96	$4,233.08	$4,176.79	3939.05
Add Depreciation		500.00	500.00	500.00	500.00	500.00	500.00	500.00	500.00	500.00	500.00
Less Capital Expenditures	-7500	-7500	0	0	0	0	0	0	0	0	0
Less Increase in Net Working Capital		($665.40)	($1,007.36)	($111.36)	($111.36)	($111.36)	($111.36)	($111.36)	($111.36)	($111.36)	($54.52)
Free Cash Flows	-7500	($8,472.43)	$3,269.54	$4,328.57	$4,458.71	$4,554.57	$4,614.70	$4,637.60	$4,621.72	$4,565.43	4384.53
Net Working Capital Recovery		0	0	0	0	0	0	0	0	0	$2,506.82
Sale of facility at book value		0	0	0	0	0	0	0	0	0	10,000.00
NPV Cash Flows	-7500	($8,472.43)	$3,269.54	$4,328.57	$4,458.71	$4,554.57	$4,614.70	$4,637.60	$4,621.72	$4,565.43	16891.35
Net Profit (Operating Profit - Interest)		($2,007.03)	$2,576.89	$2,739.93	$2,870.08	$2,965.93	$3,026.06	$3,048.96	$3,033.08	$2,976.79	2739.05
Profit margin (Net Profit/Net Revenue_		-28.83%	14.73%	14.68%	14.47%	14.13%	13.66%	13.07%	12.39%	11.60%	10.44%
	NPV	$15,124.13
	IRR	22.67%

Sensitivity Analysis

Sensitivity Analysis downside scenarios	NPV	IRR
Base Scenario @Utlization rate at 60%	$15,124.13	22.67%
Scenario 1: Decreasing Utilization of year 2 to 45%	8,215.57	16.28%
Scenario 2: Decreasing utilization growth rate to 3%	6,763.97	15.06%
Scenario 3: Decreasing Utilization of year 2 to 45% and decreasing the the utilization growth rate to 3%	13,695.24	21.64%
Scenario 4: Commercial payer mix @ 20%	11,794.57	19.68%
Scenario 5: WACC of HCA @0% Tax = 7.51%	16,378.66	22.67%