Hca Case

Lecture 22

Leveraged Buyout Valuation:

HCA 2006

Submit Exam Date Choice

Before Start of Class

Friday Review Session



Review Session: Problem Set 3

 Normal room and time



Also: TA will answer questions about

HCA if time permits

1

Cases and Laptop Policy



Laptop policy remains the same

 Bring a print out of your case solution to

class

The Homestretch…

1.

2.

3.

4.

5.

How much are future cash flows worth?

What are the firm’s expected future cash flows?

What is the appropriate discount rate?

How should the firm be financed (debt/equity)?

Valuation Cases

Lecture 20: Eskimo Pie

THANKSGIVING

Lecture 21: Problem Set 3 – Buckeye Computers (Due!)

Lecture 22: HCA

Lecture 23: Calaveras (Due!)

Lecture 24: Telecom Argentina

Lecture 25: Course Review

2

Steps of the valuation

 Estimate FCF

 Determine the Optimal Capital Structure

 Estimate the Appropriate Discount Rate (WACC)

 Estimate the Residual Value

 Compute the Valuation of the Firm

Deferred Taxes and FCF

Free Cash Flow

EBIT

Tax on EBIT (37.5%)

NOP

 Depreciation

 CAPEX

∆NFA

 ∆WC

 ∆Deferred Taxes

An automatic source – normally we’d include in WC

 FCF

3

FCF: Estimating NOP

Revenue

(−) Operating expenses

(−) Depreciation

(+) Other operating income

= EBIT

(-) Tax (@37.5%)

= NOP

2007

27,071

23,029

1,446

53

2,649

993

1,656

2008

28,995

24,783

1,538

60

2,734

1025

1,709

2009

31,027

26,633

1,632

66

2,828

1061

1,768

2010

33,215

28,588

1,734

74

2,967

1113

1,854

2011

35,602

30,733

1,842

81

3,108

1166

1,943

2012 2013

37,204 38,878

3,248 3,394

1,218 1,273

2,030 2,121

• Revenue growth after 2011 is assumed to be 4.5%

• OPM after 2011 stays at its 2011 level (8.73%)

• Tax rate is 37.5%

FCF: Estimating NFA

2006E

Net PPE (beg)

(+) Capex

(-) Depreciation

Net PPE (final)

 Net PPE

2007

2008

2009

2010

2011 2012 2013

11,765 12,119 12,081 11,949 11,715...