Topic: Healthcare Finance Problems
Problem 1 - Medical Corporation of America (MCA) has a current stock price of $36, and its last dividend (D0) was $2.40. In view of MCA's strong financial position, its required rate of return is 12 percent. If MCA's dividends are expected to grow at a constant rate in the future, what is the firm's expected stock price in five years?
Problem 2 - Assume that a risk-free rate is 6 percent and the market risk premium is 6 percent. The stock of Physicians Care Network (PCN) has a beta of 1.5. The last dividend paid by PCN (D0) was $2 per share.
a. What would PCN's stock value be if the dividend were expected to grow at a constant:
- -5 percent?
- 0 percent?
- 5 percent?
- 10 percent?
b. What would be the stock value if the growth rate were 10 percent but PCN's beta fell to: