Description
Please complete the four math problems below.
9/1/14 | UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | |||||||
Chapter 6 -- Debt Financing | ||||||||
PROBLEM 1 | ||||||||
Assume Venture Healthcare sold bonds that have a ten-year maturity, a 12 percent coupon rate with | ||||||||
annual payments, and a $1,000 par value. | ||||||||
a. Suppose that two years after the bonds were issued, the required interest rate fell to 7 percent. What | ||||||||
would be the bond's value? | ||||||||
b. Suppose that two years after the bonds were issued, the required interest rate rose to 13 percent. What | ||||||||
would be the bond's value? | ||||||||
c. What would be the value of the bonds three years after issue in each scenario above, assuming that | ||||||||
interest rates stayed steady at either 7 percent or 13 percent? | ||||||||
ANSWER |
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | ||||||||
Chapter 6 -- Debt Financing | ||||||||
PROBLEM 3 | ||||||||
Tidewater Home Health Care, Inc., has a bond issue outstanding with eight years remaining to maturity, | ||||||||
a coupon rate of 10 percent with interest paid annually, and a par value of $1,000. The current market | ||||||||
price of the bond is $1,251.22. | ||||||||
a. What is the bond's yield to maturity? | ||||||||
b. Now, assume that the bond has semiannual coupon payments. What is its yield to maturity in this | ||||||||
situation? | ||||||||
ANSWER |
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | ||||||||
Chapter 6 -- Debt Financing | ||||||||
PROBLEM 5 | ||||||||
Minneapolis Health System has bonds outstanding that have four years remaining to maturity, | ||||||||
a coupon interest rate of 9 percent paid annually, and a $1,000 par value. | ||||||||
a. What is the yield to maturity on the issue if the current market price is $829? | ||||||||
b. If the current market price is $1,104? | ||||||||
c. Would you be willing to buy one of these bonds for $829 if you required a 12 percent rate of return on | ||||||||
the issue? Explain your answer. | ||||||||
ANSWER |
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | ||||||||
Chapter 9 -- Cost of Capital | ||||||||
PROBLEM 5 | ||||||||
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? | ||||||||
ANSWER |

Explanation & Answer

Hello, your assignment is complete. Thank you
a)
face value of Bonds
annual coupon
Time of Maturity (yrs)
annual interest Rate
price of bond
b)
face value of Bonds
annual coupon
Time of Maturity (yrs)
annual interest Rate
price of bond
$1,000
$120
8
7%
($1,298.56)
$1,000
$120
8
13%
($952.01)
c)
Interest rate falling to 7%
f...
