Morningside Nursing Home, a single non-profit facility, is estimating its corporate cost of capital. Its tax-exempt debt currently requires an interest rate of 6.2 percent, and its target capital structure calls for 60 percent debt financing and 40 percent equity financing (equity fund). Estimated costs of capital for select investor-owned healthcare companies are detailed below: Glaxo Wellcome 15.0% Beverly Enterprises 16.4% HEALTHSOUTH 17.4% Humana 18.8% a. What is the best estimate of Morningside's cost of capital? b. What is the company's cost of corporate capital? ANSWER My calculations show that Glaxo is the best estimate, am I calculating this correctly? 

to. Galaxo Wellcome is the best estimate of Morningside's cost of capital
debt burden		60%				debt burden		60%				debt burden		60%				debt burden		60%
Equity Weight		40%				Equity Weight		40%				Equity Weight		40%				Equity Weight		40%
Cost of debt before taxes		6%				After-tax cost of debt		6%				After-tax cost of debt		6%				After-tax cost of debt		6%
cost of capital		15,00%				cost of capital		16,40%				cost of capital		17,40%				cost of capital		18,80%
interest rate	(exempt)		CCC=	9,72%		interest rate	(exempt)		CCC=	10,28%		interest rate	(exempt)		CCC=	10,68%		interest rate	(exempt)		CCC=	11,24%
b.
debt burden		60%
Equity Weight		40%
Cost of debt before taxes		6%
cost of capital		15,00%
interest rate	(exempt)		CCC=	9,72%

Answer rating: 100% (QA)

ANSWER I Generally while choosing cost of capital we go for closest competitor who is similar t... View the full answer