Posted: July 17th, 2016

Calculate the after-tax cost of debt for the Wallace clinic, a for-profit healthcare provider?

d. Repeat the analysis required for Part a, but now assume that Seattle Health Plans is a not-for-profit corporation and pays no taxes. Compare the results with those obtained in Part a

8.
Calculate the after-tax cost of debt for the Wallace clinic, a for-profit healthcare provider, assuming that the coupon rate set on its debt is 11 percent and its tax rate is
a. 0 percent
b. 20 percent
c. 40 percent

9.
St. Vincent’s Hospital has a target capital structure of 35 percent debt and 65 percent equity. Its cost of equity (fund capital) estimate is 13.5 percent and its cost of tax-exempt debt estimate is 7 percent. What is the hospital’s corporate cost of capital?

10.
Richmond Clinic has obtained the following estimates for its costs of debt and equity at various capital structures:

Percent Debt After-Tax Cost of Debt Cost of Equity
0% _ 16%
20 6.6% 17
40 7.8 19
60 10.2 22
80 14. 0 27
What is the firm’s optimal capital structure? (Hint: Calculate its corporate cost of capital at each structure. Also, note that data on component costs at alternative capital structures are not reliable in real-world situations.)