How would estimate of the corporate cost of capital change

Assignment Help Finance Basics

Reference no: EM132072139

Question: A relatively small medical group practice is trying to estimate its corporate cost of capital. The practice is 100 percent equity financed. The rate of return on 20-year Treasury bonds is currently 6 percent, and the expected rate of return on the market is 12 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.

a. What is the best estimate of the firm's corporate cost of capital?

b. How would your estimate of the corporate cost of capital change if the success of the medical group practice was highly dependent on the reputation of a single physician in the group?

Reference no: EM132072139

Questions Cloud

The volatility of the underlying asset return increases : By how much will the long call chage in value as the volatility of the underlying asset return increases from 5% to 45%?

Calculate the optimal combination of medical : Using the Lagrangean multiplier approach calculate the optimal (i.e., service maximizing) combination of medical and social worker staff.

What is the required monthly payment on a mortgage : What is the required monthly payment on a $380,000.00 mortgage. Assume a standard mortgage (360 months) with monthly payments. Use a nominal rate.

What is its times-interest-earned ratio : Its basic earning power (BEP) ratio is 20%, and its return on assets (ROA) is 7%. What is its times-interest-earned (TIE) ratio?

How would estimate of the corporate cost of capital change : How would your estimate of the corporate cost of capital change if the success of the medical group practice was highly dependent on the reputation of a single.

How would you justify implementing wsus on a computer : How would you justify implementing WSUS on a computer? What benefits does WSUS have? How do you put WSUS on a computer?

What trade name did you search : You must explain the proposed app that you want to develop. Please be sure to explain what they app will do.

Review problem on business communication : Why does being relevant in business communication require customized messages that are important to the targeted audience?

How does state government data security breach information : The National Conference of State Legislatures (NCSL) Web site traces telecommunication and information technology state legislation.

User Account

All Pages