Chang Dental Clinic Harvard Case Solution & Analysis

Chang Dental Clinic Case Solution

Problem Diagnosis

The case emphasizes upon an investment decision in which there is an opportunity for purchasing an established dental clinic. This report will attempt to analyze the situation of the potential investor, Chris Miller, who is interested in this opportunity. This would be the first dental clinic, which would be solely operated by him located in Petrolia, Ontario, Canada. A range of issues will have to be analyzed regarding the financing of this purchase of the clinic. The purchase price is set at $ 510,000 and Chris has $ 190,000 from his personal savings.

Therefore, the additional financing will have to be raised through a bank loan in order to finance this purchase of the clinic. The performance of the business after 1 year of the sale needs to be performed along with the projections for the financial statements of the company. Moreover, the ability to repay the debt after the business is sold will also have to be analyzed to make a final recommendation to Chris regarding the purchase of this business.

Analysis

This is one of the potential opportunities for Chris to expand his experience in the dentistry industry in Canada; however, he needs to make a quick decision before anyone else seizes this opportunity from Chris. There would be many advantages of taking this established opportunity. First of all there are just three clinics in the city and Chris would get access to many customers with this established clinic. Before assessing the financial performance of the Clinic for the first year after the sale the projected income statement and the projected balance sheet have been prepared for the company and a range of the scenarios have been assessed.

Scenarios

Three different scenarios have been analyzed and based upon these the final recommendation will be made to Chris.
Scenario 1:Scenario 1 is prepared according to the assumptions of Chris in which he believes that he would be able to reduce the associate fees to 15% of the sales revenue and the growth in the sales would be equal to half of the growth rate of the sales between 2004 and 2005. Based upon these assumptions, Chris is able to achieve a growth in the sales and a rapid increase in the net income of the dental clinic.

Moreover, if we compute the free cash flow by simply adding the depreciation/amortization expense,then Chris would have a lot of cash flow available to repay the debt which he will borrow in order to finance the purchase of the clinic. One important thing to note here is that Chris expects to grow the business however; he is not willing to purchase any new assets for the next year. Nonetheless, for this scenario, it has been assumed that the growth rate of the company is high and due to this, he is not purchasing any new assets for the year 2006.

Scenario 2:In this scenario, the growth rate of the sales has been taken to be as 8%, which is the growth rate of the sales in the industry.Moreover, the associate fees percentage has not been reduced to 15% and it has been assumed that this would remain at the same level as in the year 2005................................

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