You have been asked to value the practice of Dr. Vong, a pediatrician in your town and are provided with the following facts.
- The practice generated $800,000 in revenues last year and these revenues are expected to grow 4% a year for the next 10 years.
- Employee expenses (including nurses and secretarial help) amounted to $200,000 last year and are expected to grow 4% a year for the next 10 years.
- The annual rent for the facilities last year was $100,000 and is expected to grow 4% a year for the next 10 years.
- Rentals of medical equipment cost $75,000 last year and this expense is expected to grow 5% for the next 10 years.
- The cost of medical insurance last year was $75,000 and is expected to grow 7% a year for the next 10 years.
- The tax rate on the income, including state and local taxes, is 40%.
- The cost of capital is 11%.
Assuming that there will be no drop-off in revenues if a new pediatrician takes over the practice, estimate the value of the practice.