Reference no: EM132569618

a) Hospital Corporation of Boston (HCB)'s 12 percent coupon rate, annual payment, $1,000 par value, 30-year bonds currently sell at a price of $1,188.52. Compute HCA's after-tax cost of debt (Kd).

b) HCB has preferred stock that pays a constant dividend of $15 per share. The stock currently sells for $125. If the company incurs a 3% flotation cost each time it issues preferred stock, what is the cost of preferred stock (Kp)?

c) The common stock of HCB is currently selling for $70 and the most recent dividend (Do) was $3.5 per share of common stock. In addition, analysts have indicated that the HCB has been growing at a constant rate of 8 percent, and this growth is expected to continue forever. What is HCB's cost of retained earnings (Ke)?

d) The common stock of HCB is currently selling for $70 and the most recent dividend (Do) was $3.5 per share of common stock. In addition, analysts have indicated that the HCB has been growing at a constant rate of 8 percent, and this growth is expected to continue forever. If the company incurs a 4% flotation cost each time it issues common stock, what is HCB's cost of equity assuming the company issued new common stock (Kn.)?

e) See parts a, b, and c. Calculate the initial weighted average cost of capital using Ke.

f) See parts a, b, and d. Calculate the weighted average cost of capital using Kn instead of Ke.