Test Your Knowledge

What is capital structure? Why should health care organizations care about it$?$

What is equity financing in the not$-$for$-$profit sector?

How do investors make money on an organization's stock?

What is the difference between common and preferred stock?

What is the cost of capital?

Assume a for$-$profit company has $$8$ million of long$-$term debt with an interest rate of $6\%.$ It has $$3$ million of preferred stock with a required dividend rate of $8\%$ and $$4$ million

of common stock that is estimated to have a cost of capital of $10\%.$ What is its weighted average cost of capital?

Assume a not$-$for$-$profit company has $$10$ million of long$-$term tax$-$exempt debt with an interest rate of $4\mathrm{.}5\%.$ The organization has $$7$ million of net assets without donor restrictions, with an estimated cost of capital of $6\%,$ and $$4$ million of net assets with donor restrictions $($in an endowment$),$ with an estimated $7\%$ return on assets $($cost of capital$).$ What is its weighted average cost of capital?