PROBLEM 2 Gainesville Surgicenter Inc. is a large, ambulatory surgery center own

ID: 2698552 • Letter: P

Question

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 $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 2010 (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 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.

capacity sales = actual revenue /utilization revenue = 36000/0.75 = 48000

percentage increase = 48000-36000/36000 = 33%

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