Essay on Chang Dental Clinic

860 Words Jul 30th, 2011 4 Pages
Chang Dental Clinic Case Analysis Chris Miller has been given an opportunity to take over an established dental clinic. The benefits of taking over this clinic is that he already has loyal customers and that there is only three clinics in the city. Miller has some major decisions that he needs to think about before he takes over this practice. He needs to decide how he will finance this purchase and how will he get the bank to give him a loan? Before we can even decide if he should go ahead with the purchase, we need to analyze three different scenarios of what can happen to the practice. We also need to make sure that Miller would be able to repay the loans as we are analyzing the different scenarios.
Scenario 1 Scenario 1 is
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Scenario 2 Scenario 2 shows the practice having moderate growth and there is no decrease in the associate fee. Even though the growth rate is 8% and not 17.5%, the company can still repay the loan because the CATO is positive throughout the years. Miller might not be able to repay the loan that fast, like scenario 1, but would be able to repay it in 10 years. The scenario seems more realistic because they are growing in a steady rate. If we add up the first years operating cash flow than it would come out to a positive $255,586. Which means that Miller would be able to pay off his fixed and variable costs.

Scenario 3 Scenario 3 shows us what would happen if he fails and looses market share. According to the case, Miller would make the visit to the dentist more pleasurable and stress-less. The only way this scenario can happen is if new competition come in or he does a bad job in fixing teeth. Just to show the “worst case scenario,” I set growth rate at 0% and the rest of the years decline 5%. We would hope that after declining of sales, Miller would liquidate the firm in 2009. As we can see, change in working capital is increasing as sales are decreasing, which means he can’t pay off the debits. If we look at the cash flow forecast, if Miller decides to liquidate the firm in 2009, then the book value of the fixed assets would be 14,836 and the salvage value would be 10,385. This scenario is unlikely to occur
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