Springfield Health System is considering developing full-service imaging centers across its service area and plans to issue long-term debt to finance these centers. Before it meets with its investment bankers, it wants to estimate how much additional debt it can take on. Currently, Springfield Health System has annual debt service payments of $5 million, and its cash flow available to meet debt service payment is $25 million per year. For its new debt issuance, it plans to issue fixed-rate debt for thirty years. It also assumes Fitch Rating Agency will assign it a BBB rating. Fitch”s median debt service coverage ratio for BBB-rated large health care systems is 2.75×. The expected fixed rate for a thirty-year BBBRATE long-term bond is 5 percent. Using Fitch”s median debt service coverage ratio for a BBB-rated bond along with the prior information, how much additional debt could Springfield take on?
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