Module 5 Learning Activity Question 13.5 What capital components are typically included

Module 5 Learning Activity

Question

13.5 What capital components are typically included when estimating a firm’s corporate cost of capital?

Problem

13.4 Richmond Clinic has obtained the following estimates for its costs of debt and equity at various capital structures:

What is the firm’s optimal capital structure? (Hint: Calculate its corporate cost of capital at each structure. Also, note that data on component costs at alternative capital structures are not reliable in real-world situations.)

Problem

14.2 Better Health, Inc., is evaluating two investment projects, each of which requires an up-front expenditure of $1.5 million. The projects are expected to produce the following net cash inflows:

a. What is each project’s IRR?

b. What is each project’s NPV if the cost of capital is 10 percent? 5 percent? 15 percent?

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