1. What is capital structure? Why should health care organizations care about it?
2. What is equity financing in the not-for-profit sector?
3. How do investors make money on an organization’s stock?
4. What is the difference between common and preferred stock?
5. What is the cost of capital?
6. Assume a for-profit company has $8 million of long-term debt with an interest rate of 6%. It has $3 million of preferred stock with a required dividend rate of 8% and $4 million of common stock that is estimated to have a cost of capital of 10%. What is its weighted average cost of capital?
7. Assume a not-for-profit company has $10 million of long-term tax-exempt debt with an interest rate of 4.5%. The organization has $7 million of unrestricted net assets, with an estimated cost of capital of 6%, and $4 million of restricted net assets (in an endowment), with an estimated 7% return on assets (cost of capital). What is its weighted average cost of capital?

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