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Gainesville Surgicenter Inc. is a large, ambulatory surgery center owned by a group practice of surgeons

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Question

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.

 

Paper#32114 | Written in 18-Jul-2015

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