Gainesville Surgicenter Inc. is a large ambulatory surgery center owned by a group practi Show more PROBLEM 2 Gainesville Surgicenter Inc. is a large ambulatory surgery center owned by a group practice of surgeons in Gainesville Florida.
Gainesville Surgicenter Inc. is a large ambulatory surgery center owned by a group practi Show more PROBLEM 2 Gainesville Surgicenter Inc. is a large ambulatory surgery center owned by a group practice of surgeons in Gainesville Florida.
The 2010 financial statements for the firm are shown below: Balance Sheet as of December 31 2010 (Thousands of dollars) Cash $1800 Accounts payable $7200 Receivables $10800 Notes payable $3472 Inventories $12600 Accruals $2520 Total current assets $25200 Total current liabilities $13192 Net fixed assets $21600 Mortgage bonds $5000 Common stock $2000 Retained earnings $26608 Total assets $46800 Total liabilities & equity $46800 Income Statement for 2010 (Thousands of dollars) Revenues $36000 Operating costs $30783 Earnings before interest and taxes $5217 Interest $1017 Earnings before taxes $4200 Taxes (40%) $1680 Net income $2520 Dividends (60%) $1512 Addition to retained earnings $1008 a. Assume that the company was operating at full capacity in 2010 with regard to all items except fixed assets (operating rooms and support space); fixed assets in 2010 were utilized to only 75 percent of capacity. By what percentage could 2011 revenues increase over 2010 revenues without the need for an increase in fixed assets? b. Now suppose 2011 revenues increase by 25 percent over 2010 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. Show less
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