Live Oak Hospital has a target capital structure of 45 percent debt and 55 percent equity. Its cost of equity estimate is 15.8 percent and its cost of tax-exempt deb estimate is 9 percent. What is the hospital's corporate cost of capital (Hurdle rate)?

 Evergreen Inc. is a for-profit assisted living. Its dividends are expected to grow at constant rate of 8 percent per year. The firm's last dividend (D0) was $2, and its current price is $16. The firm's beta coefficient is The risk-free rate of return (20-year T-bond) is 6 percent, and the expected rate of return on the market is 13 percent. Evergreen Inc's target capital structure is 65 percent debt, the interest rate required on its new debt is 10 percent, and the firm's tax rate is 28 percent.

A. What is the firm's cost of equity estimate according to DCF (discount cash flow)?

B. What is the firm's cost of equity estimate according to CAPM?

C. Based on the two estimates for the firm's cost of equity from A) & B) above, what will be your final estimate of the firm's cost of equity?

D. What is your estimate for the firm's corporate cost of capital?

3. Houston Health insurance company currently adopts a zero-debt financing. Its operating income (EBIT) is $2 million, and its tax bracket is at the 40 percent rate. It has 6 million in assets and because it is all-equity financed (i.e., 6 million in equity). If the firm now is considering replacing half of its equity financing with debt financing beginning an interest rate of 10%.

A. What impact would the new capital structure have on the firm's net income, total dollar return to investor, and ROE?

B. Redo the analysis, but now assume that the debt financing would cost 20% (interest rate =20%) \

Answer rating: 100% (QA)

To calculate the answers to your questions well go step by step 1 Live Oak Hospital Target capital structure 45 debt and 55 equity Cost of equity 158 Cost of taxexempt debt 9 To calculate the corporat... View the full answer