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Assignment help 4634

Medical Associates is a large for-pro?t group practice. Its dividendsare expected to grow at a constant rate of 7 percent per year into theforeseeable future. The ?rm’s last dividend (D0) was $2, and its currentstock price is $23. The ?rm’s beta coef?cient is 1.6; the rate of returnon 20-year T-bonds currently is 9 percent; and the expected rate of return on the market, as reported by a large ?nancial services ?rm, is13 percent. The ?rm’s target capital structure calls for 50 percent debt?nancing, the interest rate required on the business’s new debt is 10percent, and its tax rate is 40 percent.a. What is Medical Associates’s cost of equity estimate according to theDCF method?b. What is the cost of equity estimate according to the CAPM?c. On the basis of your answers to Parts a and b, what would be your?nal estimate for the ?rm’s cost of equity?d. What is your estimate for the ?rm’s corporate cost of capital?


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