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 My calculations show that Glaxo is the best estimate, am I calculating this correctly? a. Galaxo Wellcome is the best estimate for Morningside's cost of equity

a. Galaxo Wellcome is the best estimate for Morningside's cost of equity
Weight of debt		60%				Weight of debt		60%				Weight of debt		60%				Weight of debt		60%
Weight of equity		40%				Weight of equity		40%				Weight of equity		40%				Weight of equity		40%
Before-tax cost of debt		6%				After-tax cost of debt		6%				After-tax cost of debt		6%				After-tax cost of debt		6%
Cost of equity		15.00%				Cost of equity		16.40%				Cost of equity		17.40%				Cost of equity		18.80%
Tate rate	(exempt)		CCC=	9.72%		Tate rate	(exempt)		CCC=	10.28%		Tate rate	(exempt)		CCC=	10.68%		Tate rate	(exempt)		CCC=	11.24%
b.
Weight of debt		60%
Weight of equity		40%
Before-tax cost of debt		6%
Cost of equity		15.00%
Tate rate	(exempt)		CCC=	9.72%