Question

Medical Group Inc is a large for-profit practice. Their last dividend was $2.5 per share and...

Medical Group Inc is a large for-profit practice. Their last dividend was $2.5 per share and their current stock price is $25. The dividend is expected to grow at 7% and the company has a beta coefficient of 1.5. Assume the required market return is 13% and the risk free rate is 8%.

A) Calculate the cost-of-equity estimate according to the DCF Method.

B) Calculate the cost-of-equity estimate according to the CAPM Mehtod.

C) Based on the calculations above, what is your best estimate of the corporate cost of capital?

D) The firm's target capital structure is 45% debt financing, the interest required on their debt is 8%, and their current tax rate is 40%. Given this (and the information above) what is their corporate cost of capital?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

'

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
XYZ Inc. Will pay a $2.5 dividend at year-end(D1 = $2.5), The dividend is expected to...
XYZ Inc. Will pay a $2.5 dividend at year-end(D1 = $2.5), The dividend is expected to grow at a constant rate of 4% a year, and they come in stock currently sells for $52.5 a share the before-tax cost of debt is 6%, and the tax rate is 40% the target capital structure consists of 55% debt and 45% common Equity the beta of common stock is 0.95 and the market risk premium is 7%, what is your best estimate...
1, Chipotle's last dividend was $1.00 per share, and the dividend is expected to grow at...
1, Chipotle's last dividend was $1.00 per share, and the dividend is expected to grow at 10 percent indefinitely. The stock currently sells for $55 per share. What is Chipotle's cost of equity capital? 3, IBM Corporation has a preferred stock outstanding priced at $150 per share. If investors demand a 10 percent return on investments such as this, what is the annual dividend on the preferred stock? 2, 3M Corporation has a cost of equity of 12 percent and...
A relatively small medical group practice is trying to estimate its corporate cost of capital. The...
A relatively small medical group practice is trying to estimate its corporate cost of capital. The practice is 100 percent equity financed. The rate of return on 20-year Treasury bonds is currently 6 percent, and the expected rate of return on the market is 12 percent. A large practice management firm has a beta coefficient of 0.9. Market research indicates that the cost of equity for very small firms is approximately 4 percentage points higher than the cost of equity...
Cavernbridge stock trades for $33 per share. It is expected to pay a $2.5 dividend at...
Cavernbridge stock trades for $33 per share. It is expected to pay a $2.5 dividend at year end,and the dividend is expected to grow at a constant rate of 3.3% a year. The before-tax cost of debt is 5.1%, and the tax rate is 30%. The target capital structure consists of 40% debt and 60% common equity. What is the Cavernbridge's WACC (in percent) if all the equity used is from reinvested earnings?
Assume the current dividend payment for Franklin Inc. is $5/share, and it will grow at the...
Assume the current dividend payment for Franklin Inc. is $5/share, and it will grow at the constant rate of 9% per year. The required rate of return for the Franklin Inc. is 15%. Now with -Current corporate Tax Rate is 40%. -Franklin Inc. has 15-year, 12% coupon, semiannual payment, non-callable bonds sell for $1,150, future value is $1,000. -Beta = 1.2; Risk-free rate = 7%; Market risk premium = 6% -Management has determined the target capital structure for the company...
Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium...
Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $1.90 and it expects dividends to grow at a constant rate g = 5.2%. The firm's current common stock price, P0, is $25.00. The current risk-free rate, rRF, = 4.5%; the market risk premium, RPM, = 6.2%, and the firm's stock has a current beta, b, = 1.35. Assume that...
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM,...
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.20 and it expects dividends to grow at a constant rate g = 3.6%. The firm's current common stock price, P0, is $22.00. The current risk-free rate, rRF, = 4.8%; the market risk premium, RPM, = 6.1%, and the firm's stock has a current beta, b, = 1.2....
The stock of Gao Computing sells for $50, and last year's dividend was $3.13. Security analysts...
The stock of Gao Computing sells for $50, and last year's dividend was $3.13. Security analysts are projecting that the common dividend will grow at a rate of 7% a year. A flotation cost of 10% would be required to issue new common stock. Gao's preferred stock sells for $32.61, pays a dividend of $3.30 per share, and new preferred stock could be sold with a flotation cost of 8%. The firm has outstanding bonds with 20 years to maturity,...
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM,...
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $1.80 and it expects dividends to grow at a constant rate g = 5.9%. The firm's current common stock price, P0, is $30.00. The current risk-free rate, rRF, = 5%; the market risk premium, RPM, = 6.3%, and the firm's stock has a current beta, b, = 1.1....
Your firm is going to pay dividend $1 per share in the next year. The current...
Your firm is going to pay dividend $1 per share in the next year. The current stock price is $10 per share Firm beta is 10% higher than market average Constant growth rate is 5% Market risk premium is 10% and risk free rate is 2% Market value of common stock is $100 million and market value of debt is $200 million No preferred stock Cost of borrowing/issuing bond is 5% Corporate tax rate 40% What is the cost of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT