Mary Washington Case Study

Katrina Brathwaite

ID: 408002422

1. Are you comfortable with Atwood’s forecast in exhibit 3? Do you think it’s feasible?

2. How could you use the past internal medicine transaction to estimate a credible bid price for

Mary Washington Pediatrics?

3. How could you use a DCF based estimate for the practice value?

a. Based on exhibit 3 what is the Free Cash Flow expected for each year?

b. How would you estimate a terminal value for the practice in 2023?

4. What amount would you suggest Atwood and Suarez submit as an opening bid on the

practice? If their offer is rejected how high should they be willing to go?

5. How concerning is the need to use debt to finance the deal? The current owners have no debt

in the business. Is it better for the practice to have no debt?

1. Atwood’s considered revenue growth, investments and operating margin. She assumed

revenue growth rate is expected to be higher than the expected inflation rate for the next 7 years

with a 5% interest rate.

Physician’s salaries and hospital visits would increase with a population growth of 14%. Atwood

expects large investments in office equipment. Also, she assumed that with less unnecessary

expenditures operating margins would improve.

Atwood and Juarez both had $250000 that they could use for the purchase but for the rest of the

deal they expected to finance with debt.

Once these internal and external factors are capitalized correctly, I think it is feasible.
2. We can look at past transactions and focus on revenues, operating profit, assets, equity, and

cash flows transactions.

These will then be used with business valuation methods such as times revenue method,

book value method, liquidation value method, and discounted cash flow.
3a. Free Cash Flow for each year is

2017 -113

2018 -148

2019-143

2020-136

2021-164

2022-219

2023-228

Please see attached spreadsheet for calculations

b. TV = FCFnx1+g/WACC -g

Terminal Value is 3,322

Please see attached spreadsheet for calculations

4.I recommend that Atwood & Juarez place a bid price of (10.50x 155000) = $1,627,500

To determine how high they should go NPV was calculated.

Atwood & Juarez should go no more than 2 million for the medical practice.
5. Atwood and Juarez have $250,000 each ($500,000 in total) in saving that they would

combine in order to make the purchase. If the purchase price of the medical practice is going to

be the initial bid price, then Atwood and Juarez would need an additional $1,050,000. Therefore,

financing with debt is essential in this case.

Juarez is of the opinion that she can obtain a seven-year note at a five per cent (5%) interest rate

to fund the deal. If this is the case then they would have to repay $1,102,500 [(1,050,000*0.05)

+1,050,000] in seven years. Atwood and Juarez would have to make payments of $157,000

annually or $13,125 monthly.

Concerning whether it would be better for the practice to have no debt, the debt-to-

Income ratio was calculated (see spreadsheet), the Debt-to-Income ratio is high for each year.

It would be better for the practice to have no debt. It is therefore recommended that Atwood and

Juarez increase revenue or secure a note with a longer pay-back time and lower interest rate.