INPUT DATA:				KEY OUTPUT:
Cost of Debt Input:				Cost of Debt:
Years to maturity		15		YTM	8.0%
Annual coupon payment		$75.00		YTC	9.8%
Current price		$956.31
Par value		$1,000.00	face value
Years to call		5
Call price		$1,075.00
Cost of Equity Input:				Cost of Equity:
CAPM Approach:
Beta coefficient		1.4		CAPM	13.4%
Risk-free rate		5.0%
Required market return		11.0%	#7
DCF Approach:
Stock price		$5.25		DCF	13.8%
Last dividend paid		$0.18
Constant growth rate		10.0%
Debt Cost Plus RP Approach:
Risk premium		4.0%		DC+RP	12.0%
Corporate Cost of Capital Input:				Corporate Cost of Capital:
							0.1305897211
Tax rate		40.0%		CCC	10.2%
Weight of debt		35.0%
Weight of equity		65.0%
Final cost of debt estimate		8.0%
Final cost of equity estimate		13.1%

The founders of Southeastern are concerned about the threat posed by home health care businesses started by not-for-profit hospitals. Using your answer to Question 4a and the data in Table 18.3, estimate the cost of capital for the homecare division of an average not-for-profit hospital. How much confidence do you have in the cost of capital estimate? Why?