whats the constant growth rate for the discounted cash flow?

Southeastern Homecare Cost of Capital:

Balance sheet (millions of dollars
Cash and marketable securities	$2.5	Accounts payable	$1.1
Accounts receivable	5.9	Accruals	1.0
Inventory	1.3	Notes payable	0.2
Current assets	9.7	Current liabilities	2.3
Net Fixed Assets	32.9	Long-term debt	20.0
		Common stock	20.3
Total Assets	42.6	Total liabilities	42.6

Income statement
Net revenue	$80.6
Cash expenses	71.8
Depreciation	2.8
Taxable income	6.0
Taxes	2.4
Net income	3.6
Dividends	1.8
Additions to retained earnings	1.8

1. Southerns long-term debt consists of 7.5 percent coupon, BBB-rated, semiannual payment bonds with 15 years remaining to maturity. The bonds recently traded at a price of $956.31 per $1,000 par value bond. The bonds are callable in five years at par value plus a call premium of one years interest, for a total of $1,075.

2. The founders have an aversion to short-term debt, so the company uses such debt only to fund cyclical working capital needs. The companys financial plan calls for the issue of 30-year bonds to meet long-term debt needs.

3. Southerns federal-plus-state tax rate is 40 percent.

4. Southerns last dividend (D0) was $0.17, . Southerns common stock now sells at a price of $5.25 per share. The company has 10 million common shares outstanding.

5. Over the last few years, Southern has averaged a 20 percent return on equity and has paid out about 50 percent of its net income as dividends.

6. The current yield curve on U.S. Treasury securities is as follows:

Term to maturity	Yield
3 months	2.5%
6 months	3
9 months	3.3
1 year	3.5
5 years	4.0
10 years	4.5
15 years	4.8
20 years	5.0
25 years	5.1
30 years	5.2

7. A prominent investment banking firm has recently estimated the expected rate of return on the S&P 500 Index to be 11 percent.

8. Southerns historical beta, as measured by several analysts who follow the stock, falls in the range of 1.3 to 1.5.

9. The required rate of return on an average (A-rated, beta = 1.0) companys long-term debt is 7 percent.

10. Southerns market value target capital structure calls for 35 percent long-term debt and 65 percent common stock.

EXHIBIT 16.2: Selected Not-for-Profit Hospital Data

Average Long-Term Capital Structure:

30 percent debt

70 percent equity (fund capital)

Average Cost of Debt:

Interest rate on A-rated tax-exempt bonds = 5.0%