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understanding healthcare financial management Essay Assignment Paper
Golden State Home Health, Inc., is a large, California-based for-profit home health agency. Its dividends | ||||||||
are expected to grow at a constant rate of 5 percent per year into the foreseeable future. The firm’s last | ||||||||
dividend (D0) was $1, and its current stock price is $10. The firm’s beta coefficient is 1.2; the rate of | ||||||||
return on 20-year T-bonds currently is 8 percent; and the expected rate of return on the market, as | ||||||||
reported by a large financial services firm, is 14 percent. Golden State’s target capital structure calls | ||||||||
for 60 percent debt financing, the interest rate required on its new debt is 9 percent, and the firm’s tax | ||||||||
rate is 30 percent. | ||||||||
a. What is the firm’s cost of equity estimate according to the DCF method? | ||||||||
b. What is the cost of equity estimate according to the CAPM? | ||||||||
c. On the basis of your answers to Parts a. and b., what would be your final estimate for the firm’s cost of | ||||||||
equity? | ||||||||
d. What is your estimate for the firm’s corporate cost of capital? |
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