A large for-profit home healthcare corporation has dividends expected to grow at a constant rate of Show more A large for-profit home healthcare corporation has dividends expected to grow at a constant rate of 5 percent per year into the foreseeable future.
A large for-profit home healthcare corporation has dividends expected to grow at a constant rate of Show more A large for-profit home healthcare corporation has dividends expected to grow at a constant rate of 5 percent per year into the foreseeable future.
The firms last dividend (D0) was $1 and its current stock price is $10. The firms beta coefficient is 1.2; the rate of return on 20-year T-bonds currently is 8%; and the expected rate of return on the market as reported by a large financial services firm is 14%. The corporations target capital structure calls for 60% debt financing the interest rate required on its new debt is 9% and the firms tax rate is 30%. What is the firms cost of equity estimate according to the DCF method? What is the cost of equity estimate according to the CAPM? Based on your answers to (a) and (b) what would be your final estimate for the firms cost of equity? What is your estimate for the firms corporate cost of capital? Show less
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