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Determine that a liquidity premium of percentage points

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A relatively small medical group practice is trying to estimate its CCC. The practice is 100 percent equity financed. The rate of return on 20-year Treasury bonds is currently 4 percent, and the expected rate of return on the market is 8 percent. A large practice management firm has a beta coefficient of 0.9. Market research indicates that the cost of equity for very small firms is approximately 4 percentage points higher than the cost of equity for large firms. Moreover, the investors in the small group practice face liquidity risk and thus determine that a liquidity premium of 2 percentage points is appropriate.

Reference no: EM132951654

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