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    Steps on calculating the hospital's cost of capital

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    Assuming you are the financial manager of a for-profit hospital, what is the hospital's cost of capital assuming that the hospital has the following capital structure on its Statement of Financial Position (SFP; also known as a Balance Sheet):

    Long-Term Debt: $300M; current Yield to Maturity (YtM) of 6.5%, selling at par.

    Preferred Stock: $200M; coupon yield of 10%, currently selling below face value at $9,975 for every $10,000 bond.

    Common Stock: $700M; par value of $5 per share; current price of $70 per share, dividend of $12 per share.
    Tax rate: 41.5%

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    Solution Preview

    Formula: WACC = MVd*rD(1-tc) + MVe*rE

    For MVd: 300M + (9975/10000)*200M = 300M + 199.5M = 499.5M

    So rD = ...

    Solution Summary

    The solution gives detailed step on calculating the hospital's cost of capital. All formula and calculations are shown and explained.