Discussion:Investor Owned Healthcare Companies

CAPITAL STRUCTURE

Morning

side nursing home, a non for profit corporation, is estimating its corporate cost of capital. Its tax exempt debt currently requires an interest rate of 6.2 % and its target capital structure calls for 60 % debt financing and 40% equity (fund capital) financing. The estimated cost of equity for selected investor owned healthcare companies are given below.Glaxo Healthcare 15.0%Beverly enterprises 16.4 %Healthsouth 17.45Humana 18.8 %a. What is the best estimate for Morningside's cost of equity?b. What is the firm's corporate cost of capital?c. What is Medical Associates' cost of equity estimate according to the DCF method?D. What is your estimate for the firm's corporate cost of capital?

 

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