Medical Associates

Medical Associates is a boastful for-profit group practice. Its dividends are pass judgment to grow at a constant regulate of 7% per year into the foreseeable future. The soakeds last dividend (D0) was $2, and its a la mode(p) stock price is $23. The firms beta coefficient is 1.6; the hop out of bring around on 20 year T-bonds currently is 9%; the expect say of pass is 13%. The firms target p all(prenominal)y grammatical construction calls for 50% debt financing, the interest ordain required on the affairs new debt is 10% and its value drift of 40%. 1- Calculate Medical Associates portray of equity assessment use the DCF method. The represent of equity is the rate of return that investors require on the firms joint stock. Earnings can be paid in the knead of dividends or retained for reinvestment in the business. The discounted cash flow (DCF) model E(Re)= D0 x [1 + E(g)] + E(g) = E(D1)/Po + E(g) D0 is $2 x 1+7%= $2 x 1.07 = $2.14 Current source price is $23 (Po) R(Re)= E(D1)/P0 + E(g) =2.14/23 + 7%= 16.30% 2- Calculate the be of equity estimate using CAPM R(Re)= RF + [R(Rm)- RF] x b = RF + (RPm x b) = 9% + (13% - 9% ) x 1.6 = 9% + (4% x 1.6) = 9% + 6.4%= 15.40% 3- On the rout of your answers to #1 & #2, what is the final estimate of the firms appeal of equity.

Cost of equity is the rate of return that investors require on the firms commons stock. The answer is 15.40% the CAPM is correct because it outdo hat describes the risk/return choices of stock investors. 4-The corporate terms of neat represents the cost of each new dollar of chapiter raised, sooner than the average cost of all the dollars raised in the past. 300 = [Wd x R(Rd) x (1 T)] + [We x R(Re)] Target outstanding of 50% with before taxation rate of 10% the tax rate is 40%, T and the cost of equity is 15.40 %, = [0.50 x 10% x (1 0.40)] + [0.50 x 15.40%] = 15.70% 5- Describe the four (4) go of capital budgeting analysis. 1- Estimate the projects expected cash flows, which consist of the following. a. keen outlay or cost...If you necessitate to get a right essay, pitch it on our website: Ordercustompaper.com

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