Medical Associates

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Medical Associates

Dr. James Coon

Health Financial Management

February 25th, 2012

Medical Associates is a large for-profit group practice. Its dividends ar expected to pay back at a constant rate of 7% per year into the foreseeable future. The firms last dividend (D0) was $2, and its current stock harm is $23. The firms beta coefficient is 1.6; the rate of return on 20-year T-bonds currently is 9%; the expected rate of return is 13%. The firms target capital structure calls for 50% debt financing, the interest rate required on the businesss new debt is 10%, and its tax rate is 40%.
describe Medical Associates cost of equity estimate using the DCF
on that point are three tell ways used to compute approximately the cost of equity: The Capital Asset determine Model (CAPM), the discounted cash flow (DCF) model, and the dept cost plus peril premium model. To calculate the cost of equity all key ways should be used as all methods are mutually exclusive. When approaching the cost of equity with the DCF model at that place are three input parameters and it uses the dividend valuation model as its basis. Medical Associates is a large for-profit group that is expected to grow at the rate of 7% per year, which is the constant rate E(g) at which the dividend is expected to grow.



The constant growth model can be used

E(Re) = D0 x [1+E(g)] + E(g)
P0
= E(D1) + E(g)
P(0)
The required rate of return on equity, the R(Re) is the rate that stockholders expect to earn on other investments. Investors in Medical Associates can earn this return by both buying additional shares of the firm of interest or purchasing stock of similar firms. Medical Associates current stock expenditure is $23 which is the P0. The firms DCF estimate according the DCF model is:
R(Re) = E(D1) + E(g)
P0
= $2.00 x (1+0.07) + 7%
$23
= 9.3% + 7%
= 16.3%
Thus, the Medical Associates DCF estimate is...If you want to get a full essay, order it on our website: Orderessay



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