Outer Range Surgical Center (“ORSC”) is an investor-owned corporate entity with five surgeons all having equal ownership shares in the business. It has been in operation for seven years and has been profitable since the second year of operation. You represent the management company running ORSC for the investors (and the source of those allocated overhead costs you see in the attached statement of operations), and are evaluating the possibility of adding three new shareholders to the corporation. The new shareholders would generate another 1,700 cases per year and would require addition of two new surgical suites with associated prep-hold and post-anesthesia care space. Currently, ORSC is a 12,500 square foot building owned by the corporation with 2,500 square feet allocated to waiting areas and business office functions. The remaining 10,000 square feet of the space is allocated to three operating rooms with six prep-hold beds and six-post anesthesia care beds. All equipment and supplies are stored in the operating rooms and there is no dedicated sterile processing space – all sterile items are shipped in from outside supply vendors. You may state any other operational assumptions you need to complete your analysis. Keep it simple. I am not looking for your architectural acumen here – just how you run the numbers on this deal.

The current owners provided $100,000 each of their own funds to start the business ($10/share in equal lots of 10,000 shares) and financed the remainder of the start up with a twenty year bank loan at 5% annual interest, payable monthly. Assume that the new investors would be asked to buy their ownership shares at a market rate you determine using the attached financial statements for Fiscal Year 2020 just ended.


Create a new balance sheet that shows what would happen to the balance sheet you are given if the new investors are brought in and the expansion costs you $1,500,000. Assume for discussion sake only that your expansion is fully funded by new investors (you can add more investors if the new docs in the discussion forum are not enough to fund this project) at the beginning of FY2021 on July 1, 2020 and that no other changes happen to receivables or items other than your capital assets, cash, and equity. State any assumptions you need to complete the task (e.g. days in A/R, days cash on hand, etc.).
Next, change it around 180 degrees – If you took on only debt to fund the expansion and brought on no new owners, what would be the cost of that borrowing? Take today’s prime rate plus two percent (changing it up from the discussion question) and calculate an amortization of that loan over twenty years, paid monthly.
WHAT would you do and WHY?

Balance sheet projection – show calculations
Amortization schedule – show calculations based on stated assumptions
WHAT would you do and WHY? This evaluation is based on the new balance sheet (where 3 new doctors/investors are added from the original scenario). You can do this is a spreadsheet.

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