Assume that Dominion Healthcare facility is a large group practice. Its dividends are expected to grow at a constant rate of 7 percent per year into the foreseeable future.. The firms last dividend (D₀) was $2.00, and its current stock price is $23. The firms beta coefficient is 1.6; the rate of return on 20-year T-bonds currently is 9 percent; and the expected rate of return on the market, as reported by a large financial services firm is 13 percent. The firms target capital structure calls for 50 percent debt financing , the interest rate required on the businesss new debt is 10 percent, and its tax rate is 40 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 method?

c. On the basis of your answers for Parts a and b, what would be your final estimate for the firms costof equity?