Business, 12.02.2020 05:20 wdgyvwyv8729

Golden State Home Health, Inc., is a large, California-based for-profit home health agency. Its dividends are expected to grow at a constant rate of 5 percent per year into the foreseeable future. The firms last dividend (Do) was $1, and its current stock price is $10. The firms beta coefficient is 1.2; the rate of return on a 20 year T-bond currently is 8 percent; and the expected rate of return on the market, as reported by a large financial services firm, is 14 percent. Golden States target capital structure calls for 60 percent debt financing, the interest rate required on its new debt is 9 percent, and the firms tax rate is 30 percent.

a. What is the firms cost of equity estimate according to the DCF method?
b. What is the firms cost of equity estimate according to the CAPM?
c. On the basis of your answer to Parts a and b, what would be your final estimate for the firms cost of equity?
d. What is your estimate for the firms corporate cost of capital?

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Golden State Home Health, Inc., is a large, California-based for-profit home health agency. Its divi...

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