| Gainesville Surgicenter Inc. is a large, ambulatory surgery center owned by a group practice of surgeons |
| in Gainesville, Florida. The 2006 financial statements for the firm are shown below: |
| Balance Sheet as of December 31, 2006 (Thousands of dollars) |
| 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) |
| 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 |
| assets (operating rooms and support space); fixed assets in 2006 were utilized to only 75 percent of |
| capacity. By what percentage could 2007 revenues increase over 2006 revenues without the need for an |
| increase in fixed assets? |
| b. Now suppose 2007 revenues increase by 25 percent over 2006 revenues. Use the constant growth |
| method to develop a pro forma balance sheet and income statement as in Table 14.3. Assume that |
| Gainesville cannot sell any fixed assets and that any financing required is borrowed as notes payable at |
| an interest rate of 12 percent. |
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problem-set-8---forecasting.xlsx
