question archive Morningside Nursing home, a not-for-profit corporation, is estimating its corporate cost of capital
Morningside Nursing home, a not-for-profit corporation, is estimating its corporate cost of capital
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Morningside Nursing home, a not-for-profit corporation, is estimating its corporate cost of capital. It’s 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 (fund capital) financing. The estimated cost is equity for selected investor-owned healthcare companies are as follows:
GlaxoSmithKline 15%
Long-Term Care Corporation 16.4%
Morningside Nursing home, a not-for-profit corporation, is estimating its corporate cost of capital. It’s 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 (fund capital) financing. The estimated cost is equity for selected investor-owned healthcare companies are as follows:
GlaxoSmithKline 15%
Long-Term Care Corporation 16.4%
HEALTHSOUTH 17.4%
Humana 18.8%
What is the best estimate for Morningside’s cost of equity?
What is the firm’s corporate cost of capital?
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Answer:
1.
(15+16.4+17.4+18.8)/4= 16.91%
2.
(6.2*.6)+(16.4*.4)=10.28%
