HCA 420 HCA420 Workshop Four 4.6 Dropbox Chapters 11, 12&13 Problems Solution
HCA 420 Workshop Four 4.6 Problems from Chapters 11, 12 and 13 Dropbox (Indiana)
11.2 Twin Oaks Health Center has a bond issue outstanding with a coupon rate of 7 percent and four years remaining until maturity. The par value of the bond is $1,000, and the bond pays interest annually.
12.3 A broker offers to sell you shares of Bay Area Healthcare, which just paid a dividend of $2 per share. The dividend is expected to grow at a constant rate of 5 percent per year. The stock’s required rate of return is 12 percent.
12.9 California Clinics, an investor-owned chain of ambulatory care clinics, just paid a dividend of $2 per share. The firm’s dividend is expected to grow at a constant rate of 5 percent per year, and investors require a 15 percent rate of return on the stock.
13.1 Seattle Health Plans currently uses zero-debt financing. Its operating income (EBIT) is $1 million, and it pays taxes at a 40 percent rate. It has $5 million in assets and, because it is all-equity financed, $5 million in equity. Suppose the firm is considering replacing half of its equity financing with debt financing bearing an interest rate of 8 percent.
13.7 Golden State Home Health, Inc. is a large, California-based for profit home health agency. Its dividends are expected to grow at a constant rate of 5 percent per year into the foreseeable future. The firm’s last dividend (D0) was $1, and its current stock price is $10. The firm’s beta coefficient is 1.2; the rate of return on 20year T-bonds currently is 8 percent; and the expected rate of return on the market, as reported by a large financial services firm, is 14 percent. Golden State’s target capital structure calls for 60 percent debt financing, the interest rate required on its new debt is 9 percent, and the firm’s tax rate is 30 percent.
