Week 4 Case Study Assignment

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Instructions
Course Learning Outcome(s) for Assignment: Effectively gather financial and market information to guide strategic decision making and improve patient outcomes. Interpret financial and market information to guide strategic decision making and improve patient outcomes. Instructions: Due Tuesday of Week 4 by 11:59 pm EST. Read Case #13 (pages 89-90) from Gapenski's Cases in Healthcare Finance - "Pacific Healthcare (A)". Review the case, utilize the case model provided by the publisher, and respond to the following questions: To prepare for the meeting, create a summary of the yields of each bond by completing the table shown in Exhibit 14.2. Remember that the YTM of each bond is assumed to be the required rate of return of each bond and that the semiannual YTM must be multiplied by two to get the stated (nominal) YTM. I will translate it into my own words. The Chair comments that the 15-year and both 25-year bonds are callable five years from today at $1,050 and asks you for the yield-to-call on each of the three bonds. Finally, the Chair states that most bond market analysts believe that interest rates will remain at the 10 percent level for the next several years. She asks you whether Pacific should consider calling any of its bonds and why. (Hint: No additional calculations are required.) Prepare your response in memo format, suitable for presentation to a senior level executive. All Excel work should be imported into the memo in table format (in the body of the document) or enclosed as an Appendix within the same document. For some additional guidance on how to construct a professional memo, please see the link below. https://owl.purdue.edu/owl/subject_specific_writing/professional_technical_writing/memos/sample_memo.html
Due on Sep 10, 2024 11:59 PM

You may adjust the spacing on each sheet to show your work or add additional sheets to show your work for set of questions within each problem.

ALL calculations, and figures must be provided in your assignment, where applicable.

Week 3 Exercises (Fall 2022) Excel Workbook

Student Name:

PROBLEM 1: Week 3 and Week 4 Debt Financing

Assume HCA sold bonds that have a ten-year maturity, a 13 percent coupon rate with

annual payments, and a $1,000 par value.

a. Suppose that two years after the bonds were issued, the required interest rate fell to 12 percent. What

would be the bond's value?

b. Suppose that two years after the bonds were issued, the required interest rate rose to 14 percent. What

would be the bond's value?

PROBLEM 2 : Week 3 and Week 4 Debt Financing

Tenet Healthcare, has a bond issue outstanding with eight years remaining to maturity,

a coupon rate of 9 percent with interest paid annually, and a par value of $1,000. The current market

price of the bond is $1,251.22.

a. What is the bond's yield to maturity?

b. Now, assume that the bond has semiannual coupon payments. What is its yield to maturity in this

situation?

PROBLEM 3: Week 3 and Week 4 Debt Financing

United Health Group has bonds outstanding that have four years remaining to maturity,

a coupon interest rate of 8 percent paid annually, and a $1,000 par value.

a. What is the yield to maturity on the issue if the current market price is $829?

b. If the current market price is $1,104?

c. Would you be willing to buy one of these bonds for $829 if you required a 12 percent rate of return on

the issue? Explain your answer.

Student Name:

PROBLEM 1: Week 3 and Week 4 Equity Financing

Liberty Rehab Corporation has a current stock price of $56, and its last dividend (D0) was

$5.00. In view of the company's strong financial position, its required rate of return is 10 percent. If Liberty's

dividends are expected to grow at a constant rate in the future, what is the firm's expected stock price in

five years?

Constant Growth Rate:

Expected Stock Price in 5 Years:

PROBLEM 2: Week 3 and Week 4 Equity Financing

Your personal financial advisor is trying to get you to buy the stock of Eagle Healthcare, a

local drug and alcohol rehabilitation company. The stock has a current market price of $35, its last dividend (D0) was $2.50,

and the company's earnings and dividends are expected to increase at a constant growth rate of 8 percent. The

required return on this stock is 15 percent. From a strict valuation standpoint, should you buy the

stock?

Include the solution for deciding to buy or not buy the stock.

Student Name:

PROBLEM 1: Week 3 and Week 4 Cost of Capital

St. David's Hospital in Austin, Texas has a target capital structure of 35 percent debt and 65 percent equity. Its cost of

equity (fund capital) estimate is 13.5 percent and its cost of debt is 7 percent. If it has a 35% tax rate, what

is the hospital's corporate cost of capital?

PROBLEM 2: Week 3 and Week 4 Cost of Capital

The capital structure for HCA is provided below. If the firm has a 5% after tax cost of debt, 9% commerical loan rate,

a 11.5% cost of preferred stock, an 15% cost of common stock, and given the dollar amounts provided below, what is the firm's

weighted average cost of capital (WACC)?

Capital Structure (in K's)

Weights

Individual Costs

Weighted Costs

Bonds

$ 1,083

5.00%

Commercial Loans

$ 2,845

9.00%

Preferred Stock

$ 268

11.50%

Common Stock

$ 3,681

15.00%