HCM 301, textbook is Gapenski & Pink (2015), excel math problems
HCM 301, textbook is Gapenski & Pink (2015), excel math problems
I need help with a Accounting question. All explanations and answers will be used to help me learn.
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 |
Use Promo Code: FIRST15