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There are 3 components of capital which includes cost of debt, cost of preferred stock and...

There are 3 components of capital which includes cost of debt, cost of preferred stock and cost of equity After Tax cost of debt = I(1-t) I = Interest rate of debt t = tax rate Cost of preference capital = Dp/Np Dp = dividend of preference share Np = proceeds of preference share Cost of equity(CAPM method) Ke = Rf +Ba(Rm-Rf) Ke= cost of equity Rf= Risk free rate of return Ba = Beta of the security Rm= expected market return CALCULATE THESE FORMULAS WITH THE PROVIDED INFORMATION. Income Statement 2017 2016 2015 Revenues before provision for doubtful $47,653 $44,747 $43,591 accounts Provision for doubtful accounts 4,039 3,257 3,913 Revenues 43,614 41,490 39,678 Salaries and benefits 20,059 18,897 18,115 Supplies 7,316 6,933 6,638 Other operating expenses 8,051 7,496 7,056 Equity in earnings of affiliates (45) (54) (46) Depreciation and amortization 2,131 1,966 1,904 Interest expense 1,690 1,707 1,665 Losses (gains) on sales of facilities (8) (23) 5 Losses on retirement of debt 39 4 135 Legal claim costs (benefits) ? (246) 249 Total Expenses 39,233 36,680 35,721 Income before income taxes 4,381 4,810 3,957 Provision for income taxes 1,638 1,378 1,261 Net income 2,743 3,432 2,696 Net income attributable to noncontrolling 527 542 567 interests Net income attributable to HCA Healthcare, $2,216 $2,890 $2,129 Inc. Per share data: Basic earnings per share $6.12 $7.53 $5.14 Diluted earnings per share $5.95 $7.30 $4.99 Shares used in earnings per share calculations (in millions): Basic 362.31 383.59 414.19 Diluted 372.22 395.85 426.72 EBIT 6,071 6,517 5,622 EBITDA 3,940 4,551 3,718 Share Price on Last Day of Year 87.84 74.02 67.63 Balance Sheet 2017 2016 2015 ASSETS Current assets: Cash and cash equivalents $732 $646 $741 Accounts receivable, less allowance for 6,501 5,826 5,889 doubtful accounts of $5,488 and $4,988 Inventories 1,573 1,503 1,439 Other 1,171 1,111 1,163 Current Assets 9,977 9,086 9,232 Property and equipment, at cost: Land 1,746 1,611 1,524 Buildings 14,249 13,546 12,533 Equipment 22,168 20,580 19,335 Construction in progress 1,921 1,318 1,222 40,084 37,055 34,614 Accumulated depreciation (22,189) (20,703) -19,600 17,895 16,352 15,014 Investments of insurance subsidiaries 418 336 432 Investments in and advances to affiliates 199 206 178 Goodwill and other intangible assets 7,394 6,704 6,731 Other 710 1,074 1,157 Total assets $36,593 $33,758 $32,744 LIABILITIES AND STOCKHOLDERS? DEFICIT Current liabilities: Accounts payable $2,606 $2,318 $2,170 Accrued salaries 1,369 1,265 1,233 Other accrued expenses 1,983 2,035 1,880 Long-term debt due within one year 200 216 233 Current Liabilities 6158 6,158 5,834 5516 5,516 Long-term debt, less net debt issuance 32,858 31,160 30,255 costs of $164 and $170 Professional liability risks 1,198 1,148 1,115 Income taxes and other liabilities 1,374 1,249 1,904 Stockholders? deficit: Common stock $0.01 par; authorized 1,800,000,000 4 4 4 shares; outstanding 350,091,600 shares?2017 and 370,535,900 shares?2016 Accumulated other comprehensive loss (278) (338) -265 Retained deficit (6,532) (6,968) 25,675 -7,338 Stockholders? deficit attributable to (6,806) (7,302) -7,599 HCA Healthcare, Inc. Noncontrolling interests 1,811 1,669 1553 1,553 -4995 (4,995) (5,633) -6,046 Total Liabilities $36,593 $36,593 $33,758 $32,744 Total Liabilities 39,016 36,994 35,771 Total Common Equity 7600 7300 6810 Shares Outstanding (using Morningstart data) 427 396 372 Book Value Per Share 17.79859485 18.43434343 18.3064516

Income Statement
2017 2016 2015
Revenues before provision for doubtful $47,653 $44,747 $43,591
accounts
Provision for doubtful accounts 4,039 3,257 3,913
Revenues 43,614 41,490 39,678
Salaries and benefits 20,059 18,897 18,115
Supplies 7,316 6,933 6,638
Other operating expenses 8,051 7,496 7,056
Equity in earnings of affiliates (45) (54) (46)
Depreciation and amortization 2,131 1,966 1,904
Interest expense 1,690 1,707 1,665
Losses (gains) on sales of facilities (8) (23) 5
Losses on retirement of debt 39 4 135
Legal claim costs (benefits) ? (246) 249
Total Expenses 39,233 36,680 35,721
Income before income taxes 4,381 4,810 3,957
Provision for income taxes 1,638 1,378 1,261
Net income 2,743 3,432 2,696
Net income attributable to noncontrolling 527 542 567
interests
Net income attributable to HCA Healthcare, $2,216 $2,890 $2,129
Inc.
Per share data:
Basic earnings per share $6.12 $7.53 $5.14
Diluted earnings per share $5.95 $7.30 $4.99
Shares used in earnings per share calculations
(in millions):
Basic 362.31 383.59 414.19
Diluted 372.22 395.85 426.72
EBIT 6,071 6,517 5,622
EBITDA 3,940 4,551 3,718
Share Price on Last Day of Year 87.84 74.02 67.63
Balance Sheet
2017 2016 2015
ASSETS
Current assets:
Cash and cash equivalents $732 $646 $741
Accounts receivable, less allowance for 6,501 5,826 5,889
doubtful accounts of $5,488 and $4,988
Inventories 1,573 1,503 1,439
Other 1,171 1,111 1,163
Current Assets 9,977 9,086 9,232
Property and equipment, at cost:
Land 1,746 1,611 1,524
Buildings 14,249 13,546 12,533
Equipment 22,168 20,580 19,335
Construction in progress 1,921 1,318 1,222
40,084 37,055 34,614
Accumulated depreciation (22,189) (20,703) -19,600
17,895 16,352 15,014
Investments of insurance subsidiaries 418 336 432
Investments in and advances to affiliates 199 206 178
Goodwill and other intangible assets 7,394 6,704 6,731
Other 710 1,074 1,157
Total assets $36,593 $33,758 $32,744
LIABILITIES AND STOCKHOLDERS? DEFICIT
Current liabilities:
Accounts payable $2,606 $2,318 $2,170
Accrued salaries 1,369 1,265 1,233
Other accrued expenses 1,983 2,035 1,880
Long-term debt due within one year 200 216 233
Current Liabilities 6158 6,158 5,834 5516 5,516
Long-term debt, less net debt issuance 32,858 31,160 30,255
costs of $164 and $170
Professional liability risks 1,198 1,148 1,115
Income taxes and other liabilities 1,374 1,249 1,904
Stockholders? deficit:
Common stock $0.01 par; authorized 1,800,000,000 4 4 4
shares; outstanding 350,091,600 shares?2017
and 370,535,900 shares?2016
Accumulated other comprehensive loss (278) (338) -265
Retained deficit (6,532) (6,968) 25,675 -7,338
Stockholders? deficit attributable to (6,806) (7,302) -7,599
HCA Healthcare, Inc.
Noncontrolling interests 1,811 1,669 1553 1,553
-4995 (4,995) (5,633) -6,046
Total Liabilities $36,593 $36,593 $33,758 $32,744
Total Liabilities 39,016 36,994 35,771
Total Common Equity 7600 7300 6810
Shares Outstanding (using Morningstart data) 427 396 372
Book Value Per Share 17.79859485 18.43434343 18.30645161

Solutions

Expert Solution

YEAR 2017

Cost of Debt

After Tax cost of debt = I(1-t) = 5 X ( 1- 37% ) = 3 %  

I = Interest rate of debt = Interest / Debt X 100 = $ 1,690 / 32,858 X 100 = 5 %   

t = tax rate = Provision for Tax / Income before Tax X 100 = 1638 / 4381 X 100 = 37 %

Cost of Preferred stock

Cost of preference Stock capital = Dp/Np X 100 = 527 / 1811 X 100 = 29 %

Dp = Dividend of preference share = Non- Controlling interest income = $ 527

Np = Proceeds of preference share = Non- Controlling interest = $ 1811

Cost of equity(CAPM method)

Ke = Rf +Ba(Rm-Rf) =

Ke= cost of equity

Rf= Risk free rate of return

Ba = Beta of the security

Rm= expected market return

Beta and risk free rate not provided in the question

YEAR 2016

Cost of Debt

After Tax cost of debt = I(1-t) = 5 X ( 1- 29% ) = 4 %  

I = Interest rate of debt = Interest / Debt X 100 = $ 1,707 / 31,160 X 100 = 5 %   

t = tax rate = Provision for Tax / Income before Tax X 100 = 1378 / 4810 X 100 = 29 %

Cost of Preferred stock

Cost of preference Stock capital = Dp/Np X 100 = 542 / 1669 X 100 = 32 %

Dp = Dividend of preference share = Non- Controlling interest income = $ 542

Np = Proceeds of preference share = Non- Controlling interest = $ 1669

Cost of equity(CAPM method)

Ke = Rf +Ba(Rm-Rf) =

Ke= cost of equity

Rf= Risk free rate of return

Ba = Beta of the security

Rm= expected market return

Beta and risk free rate not provided in the question

YEAR 2015

Cost of Debt

After Tax cost of debt = I(1-t) = 6 X ( 1- 32% ) = 4 %  

I = Interest rate of debt = Interest / Debt X 100 = $ 1,665 / 30,255 X 100 = 6 %   

t = tax rate = Provision for Tax / Income before Tax X 100 = 1261 / 3957 X 100 = 32 %

Cost of Preferred stock

Cost of preference Stock capital = Dp/Np X 100 = 567 / 1553 X 100 = 37 %

Dp = Dividend of preference share = Non- Controlling interest income = $ 567

Np = Proceeds of preference share = Non- Controlling interest = $ 1553

Cost of equity(CAPM method)

Ke = Rf +Ba(Rm-Rf) =

Ke= cost of equity

Rf= Risk free rate of return

Ba = Beta of the security

Rm= expected market return

Beta and risk free rate not provided in the question

jeff jeffy answered 1 year ago
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