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HCA, Inc. (A) Case Solution & Answer

HCA, Inc. (A) Case Study Solution

Fairness of offer

The price recommended by Merrill Lynch to the management of HCA ranges between $55 and $59. This offer is high because of the certain issues in projections detected by McKinsey, however, the report was available to the private equity firms. Additionally, the price should be compared with the price calculated using the discounted cash flow model, which is $47.41. It is because DCF method is forward looking approach & it highly depends on the future projection rather than the historical values. Additionally, the DCF Method is focused on generating cash flows and is less affected by the policies of accounting. The private equity firm has offered $50.70 price/share which is fair from the viewpoint of shareholders.

Reasons for shareholders to be concerned about the LBO process

The reason for shareholders concern about the LBO process is that the shareholders might face blunted prospects for the growth of the company. Also, the shareholders also considered that if the sale of an asset is insufficient to meet the payment of interest arising from a high debt level, the LBO might fail and the company might go bankrupt. Paying a high rate of interest in LBO debt could damage the credit rating of the company……………..

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