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1 Chapter 6 Problem 14 2 a. What were HCAs liabilities-to-assets ratios and times-interest-earned ratios in the years 2005 through 2009? What percentage decline in EBIT could HCA have suffered each year between 2005 and 2009 before the company would have been unable to make interest payments out of operating earnings, where operating earnings is 3 defined as EBIT? c. How volaile have HCAs cash fows been over the period 2005-20097 5 d. Calculate HCAs return on invested capital (ROIC) in the years 2005 - 2009 e. HCA is the largest private operator of health care facilities in the world with hundrd of facilities in over 20 states. In 2006, private equity buyers took the company private in a $31.6 billion acquisition. In broad terms how costly do you think financial distress would be to HCA if it began to appear the company might be having difficulty servicing its 6 debt? Why? f. In late 2010 HCA announced an intended dividend recapitalization in which it would pay a $2 billion dividend to shareholders financed in large part by a S1.53 bilion bond offering. At an interest rate of 6 percent, how would the 7 added debt have affected HCAs times-interest-earned ratio in 20091? g. Please comment on HCAs capital structure. Is its 2009 debt level prudent? Is it smart to add another $1.53 billion to this total? Why, or why not?

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41 Long Term Debt Due In One Year 5 1,460 4 5 34,924 17,362 52 Common Stock (9,213)(10,421) 10,651) (11,375) 2 10,374) (11.249) 57 TOTAL LIABILITIES & EQUITY S 24,13 1 S 24,280 S 24,025 S 23,675 S 22,225

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