04 Jun ASSUME THAT THE COMPANY WAS OPERATING AT FULL CAPACITY IN 2006 WITH REGARD TO ALL ITEMS EXCEPT FIXED
Florida Home Health is a small home care agency owned by a group
practice of nurses and physical
therapists in Tampa, Florida. During the past few years, the company
reported the following revenues:
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 Health’s 2007 revenue.
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
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