FINANCE QUESTIONS

 

Be sure to bold key words (150 minimum) for each concept question and also bold answers for problems. Key terms can be found in PPT attachments.

 

Answer questions:

·       Chapter 11:

 

11.4 problem (page 406)

Pacific Homecare has three bond issues outstanding. All three bonds pay $100 in annual interest plus $1,000 at maturity. Bond S has a maturity of five years, Bond M has a 15-year maturity, and Bond L matures in 30 years.

a.  What is the value of each of these bonds when the required interest rate is 5 percent, 10 percent, and 15 percent?

b.  Why is the price of Bond L more sensitive to interest rate changes than the price of Bond S

 

·       Chapter 12:

12.6 concept (page 441)

Two investors are evaluating the stock of Beverly Enterprises for possible purchase. They agree on the stock’s risk and on expectations about future dividends. However, one investor plans to hold the stock for five years, while the other plans to hold the stock for 20 years. Which of the two investors would be willing to pay more for the stock? Explain your answer.

12.5 problem (page 443)

Better Life Nursing Home, Inc., has maintained a dividend payment of $4 per share for many years. The same dollar dividend is expected to be paid in future years. If investors require a 12 percent rate of return on investments of similar risk, determine the value of the company’s stock.

 

·       Chapter 13:

13.3 concept (page 481)

Discuss some factors that health services managers must consider when setting a firm’s target capital structure. Consider both investor-owned and not-for-profit firms in your answer.

13.3 problem (page 483)

St. Vincent’s Hospital has a target capital structure of 35 percent debt and 65 percent equity. Its cost of equity (fund capital) estimate is 13.5 percent and its cost of tax-exempt debt estimate is 7 percent. What is the hospital’s corporate cost of capital?

 
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