What is the best estimate for Morningside’s cost of equity?
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What is the best estimate for Morningside’s cost of equity?
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Morningside Nursing Home, a single not-for-profit facility, is estimating its corporate cost of capital. Its tax-exempt debt currently requires an interest rate of 6.2 percent, and its target capital structure calls for 60 percent debt financing and 40 percent equity (fund capital) financing. The estimated costs of equity for selected investor-owned healthcare companies are given below:
Glaxo Wellcome
15.0%
Beverly Enterprises
16.4%
HEALTHSOUTH
17.4%
Humana
18.8%
a. What is the best estimate for Morningside’s cost of equity?
b. What is the firm’s corporate cost of capital?
