Debt capacity. Northwest Hospital is considering a new replacement hospital and plans to issue long-term bonds to finance the project. Before it meets with its investment bankers, the hospital wants to estimate how much additional debt it can take on. Currently, the hospital has annual debt service payments of $3 million, and its cash flow available to meet debt service payment is $65 million per year. For its new debt issuance, the hospital plans to issue fixed rate debt for 20 years. It also assumes that Fitch Ratings will assign it an A rating. Fitch’s median debt service coverage ratio for A rated bonds is 4.4x. The expected fixed interest rate for a 20-year, A rated, tax-exempt bond is 5 percent.

Using Fitch’s median debt service coverage ratio for an A rated bond along with the prior information, how much additional debt could Northwest Hospital take on? (Hint: see Appendix G.)