Question

Perform a DCF valuation of Mary Washington Pediatrics using the projections in Exhibit 3. Feel free to use the attached spreadsheet for your calculations. Be sure to show the Free Cash Flow, Terminal Value and discounting calculations. Use the 9% rate in the case for WACC. Decide whether to use traditional discounting or the mid-year convention. Please show all work in Excel.

Exhibit 3 Mary Washington Pediatrics Atwood's Financial Forecast for Mary Washington Pediatrics (financial figures in thousands of US dollars) 2017 2016 0.5% 2018 5.0% 2019 5.0% 2020 5.0% 2021 3.0% 2022 3.0% 2023 2.0% 3.0% Revenue growth Operating expenses/ revenue Net working capital Net equipment Depreciation Capital expenditures 56.5% 176.5 57.4% 315.9 326.3 10.4 4.1 57.4% 272.1 375.1 14.0 62.8 57.0% 214.2 415.1 20.0 60.0 56.0% 181.9 475.1 37.0 57.0 455.1 54.0% 185.5 498.2 42.0 65.1 53.0% 189.2 484.2 42.9 28.9 53.0% 193.0 464.6 28.0 68.0 42.9 23.3 1,602 920 Net revenue Operating expenses Depreciation Physician salary Operating profit 1,682 959 20 1,766 998 28 1,854 1,038 37 579) 200 14 1,910 1,031 42 596 240 1,967 1,043 43 614 268 2,007 1,064 43 500 168 525 178 551 626 189 274

Answer 1

Calculation of Free Cash Flow							Amount(000)
Particular	2017	2018	2019	2020	2021	2022	2023
Net revenue	1602	1682	1766	1855	1910	1967	2007
Operating Expense	920	959	998	1038	1031	1043	1064
Depreciation	14	20	28	37	42	43	43
Physician Salary	500	525	551	579	596	614	626
Operating Profit	168	178	189.2	201	241	267	274
Less : Capital Expenditure	62.8	60	68	57	65.1	28.9	23.3
Add : Depreciation	14	20	28	37	42	43	43
Less : Change in Working Capital	43.8	57.9	37.7	-5.4	-3.6	-3.7	-3.8
Free Cash Flow	75.4	80.2	111.5	185.9	221.7	285.3	297.3
Growth Rate		6%	39%	67%	19%	29%	4%
Calculation of Termination Value	Particular		Amount(000)
	Free Cash flow of Last year		297.3
	Growth Rate		4% ( Assuming Last Year Growth Rate will Continue)
	WACC		9%
	Termination Value		FCF of last year(1+ Growth Rate)/ ( WACC- Growth Rate)	=297.3(1.04)/(.09-.04)	=	6183.84
							Amount(000)
Valuation	1	2	3	4	5	6	7
Free Cash Flow	75.4	80.2	111.5	185.9	221.7	285.3	297.3
Termination Value							6183.84
Total - A	75.4	80.2	111.51	185.92	221.65	285.26	6481.14
PVF @ 12% - B	0.893	0.797	0.712	0.636	0.567	0.507	0.452
Present value C - ( A*B)	67.32	63.93	79.37	118.15	125.77	144.52	2931.74
Total - C( using DCF Method)	$ 3530806.23