Morningside nursing home,a not-for profit corporation,is estimating its corporat

Question

Morningside nursing home,a not-for profit corporation,is estimating its corporate cost of capital.Its tax-exempt debt currently requires an interest rate of 6.2percent and its target capitalstructure call for 60 percent debt financing and 40 percent equity(fund capital) financing The estimate cost ofequity for selected invester-owned health care companies are given below
glaxo Wellcome 15.0%
Beverly Enterprices 16.4
HEALTHSOUTH 17.4
Humana 18.8
a,what is the best estimate for Morningside's cost of equity?
b, what is the firm's corporate cost of capital?

Explanation / Answer

here wights are We = 0.4 Wr = 0.6 and required rate rE = 15%,16.4%,17.4%,18.8% rD= 6.2% 1.the best estimate for for Morningside's cost of equity is the best estimate : incase of glaxo Wellcome 15.0% : cost of capital = We*rE+Wd*rD(1-tax rate) here required rate has given tax exmpted ,so tax wont be considerd so the cost of capital = 0.4*0.15+0.6*0.062 = 0.06+0.0372 =9.72%    the best estimate : incase Beverly Enterprices 16.4 of : cost of capital = We*rE+Wr*rD(1-tax rate) here required rate has given tax exmpted ,so tax wont be considerd so the cost of capital = 0.4*0.164+0.6*0.062 = 0.0656+0.0372 =10.28%      the best estimate : incase  of HEALTHSOUTH 17.4 : cost of capital = We*rE+Wr*rD(1-tax rate) here required rate has given tax exmpted ,so tax wont be considerd so the cost of capital = 0.4*0.174+0.6*0.062 = 0.0696+0.0372 =10.68%   the best estimate : incase  of Humana 18.8: cost of capital = We*rE+Wr*rD(1-tax rate) here required rate has given tax exmpted ,so tax wont be considerd so the cost of capital = 0.4*0.188+0.6*0.062 =0.0752+0.0372 =11.24% the best estimate for for Morningside's cost of equity is 9.72% from the above caliculations:   note : here cost of equity has given 4 types ,the high cost of equity required higher cost of capital,means that the firm should get reach its required rate on its invested projects. so the lower cost of capital cn be suggested that is the best....   incase  of HEALTHSOUTH 17.4 : cost of capital = We*rE+Wr*rD(1-tax rate) here required rate has given tax exmpted ,so tax wont be considerd so the cost of capital = 0.4*0.174+0.6*0.062 = 0.0696+0.0372 =10.68%   the best estimate : incase  of Humana 18.8: cost of capital = We*rE+Wr*rD(1-tax rate) here required rate has given tax exmpted ,so tax wont be considerd so the cost of capital = 0.4*0.188+0.6*0.062 =0.0752+0.0372 =11.24% the best estimate for for Morningside's cost of equity is 9.72% from the above caliculations:   note : here cost of equity has given 4 types ,the high cost of equity required higher cost of capital,means that the firm should get reach its required rate on its invested projects. so the lower cost of capital cn be suggested that is the best....   incase  of Humana 18.8: cost of capital = We*rE+Wr*rD(1-tax rate) here required rate has given tax exmpted ,so tax wont be considerd so the cost of capital = 0.4*0.188+0.6*0.062 =0.0752+0.0372 =11.24% the best estimate for for Morningside's cost of equity is 9.72% from the above caliculations:   note : here cost of equity has given 4 types ,the high cost of equity required higher cost of capital,means that the firm should get reach its required rate on its invested projects. so the lower cost of capital cn be suggested that is the best....   2.what is the firm's corporate cost of capital?
Its depended on it tax rate .here tax rate was not given,if its availble then coroporate cost of capital = We*rE+Wd*rD(1-tax rate)        

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