...Midland Energy Resources Inc.: Cost Of Capital Introduction Midland Energy Resources have a senior vice president, Janet Mortension, of project finance. She was preparing her annual cost of capital for midland as well as for each of its following three divisions: * Exploration & production (E&P) * Refining & Marketing (R&M) * Petrochemicals Midland was a global company with operations in oil and gas. Midland corporate treasury had began analysis and preparation of annual cost of capital for the corporation as a whole and for each divisions as part of annual capital budgeting process but this estimates were often criticized, and Midland division presidents and controllers sometimes challenged specific assumptions and inputs. The case uses comparable companies to estimate asset and beta for each individual division, and must comply the capital asset pricing model for calculating the cost of capital. Midland was conservative compared to some of its large competitors, but it has a group of trader in- house who actively managed currency. Interest rate and commodity risks within a set of guideline approved by the Board. Midland Energy Resources ha d been incorporated more than 120 years previously and in 2007 had more than 80,000 employees. Midland’s financial strategy in 2007 was founded on the following four pillars: * Oversees Growth * Value- Creating Investment * Optimal capital structure * Stock Repurchases Oversees Growth: Oversees investment were the main engine...
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...Introduction Midland Energy Resources have a senior vice president, Janet Mortension, of project finance. She was preparing her annual cost of capital for midland as well as for each of its following three divisions: * Exploration & production (E&P) * Refining & Marketing (R&M) * Petrochemicals Midland was a global company with operations in oil and gas. Midland corporate treasury had began analysis and preparation of annual cost of capital for the corporation as a whole and for each divisions as part of annual capital budgeting process but this estimates were often criticized, and Midland division presidents and controllers sometimes challenged specific assumptions and inputs. The case uses comparable companies to estimate asset and beta for each individual division, and must comply the capital asset pricing model for calculating the cost of capital. Midland was conservative compared to some of its large competitors, but it has a group of trader in- house who actively managed currency. Interest rate and commodity risks within a set of guideline approved by the Board. Midland Energy Resources ha d been incorporated more than 120 years previously and in 2007 had more than 80,000 employees. Midland’s financial strategy in 2007 was founded on the following four pillars: * Oversees Growth * Value- Creating Investment * Optimal capital structure * Stock Repurchases Oversees Growth: Oversees investment were the main engine of growth...
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...------------------------------------------------- FI – 516 – WEEK 2 - MINI CASE – ANSWER KEY Assume that you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company’s EBIT was $50 million last year and is not expected to grow. The firm is currently financed completely with equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures: ------------------------------------------------- ------------------------------------------------- % Financed With Debt rd ------------------------------------------------- 0% --- ------------------------------------------------- 20 8.0% ------------------------------------------------- 30 8.5 ------------------------------------------------- 40 10.0 ------------------------------------------------- 50 12.0 ------------------------------------------------- ------------------------------------------------- ...
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...------------------------------------------------- MINI CASE – Assume that you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company’s EBIT was $50 million last year and is not expected to grow. The firm is currently financed completely with equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures: ------------------------------------------------- ------------------------------------------------- % Financed With Debt rd ------------------------------------------------- 0% --- ------------------------------------------------- 20 8.0% ------------------------------------------------- 30 8.5 ------------------------------------------------- 40 10.0 ------------------------------------------------- 50 12.0 ------------------------------------------------- ------------------------------------------------- ...
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...Robertson Tools Company value analysis Monmouth Inc. is a leading producer of engines and massive compressors used to force natural gas through pipelines and oil out of wells. It is has dependence on sales to the oil and gas industries, the earnings of which is fluctuated owing to cyclical nature of heavy machinery and equipment sales. Anyway, the company’s amount of earnings growth and sales are above average in long-term view. From the last three acquisitions the company adhered to only leading companies in their respective market segments. The fourth company on the list of acquisition was Robertson Tool Company. Robertson Tool Company is one of the largest domestic manufacturers of cutting and edge hand tools with wide distribution system, but relatively poor in sales and profit performance. So Monmouth is eager to merge for the potential profits. Under the prism of view without strong financial calculation, Monmouth better try to gain control of Robertson Tools. When both companies will merge, the cost of it most probably will be absorbed by the strategic fitness the result of which is possible profits and synergies with created value of transaction. First of all, the sales force in Monmouth easily overlaps with Robertson which provides the possibilities of decreasing the operation costs. Further, other costs can be lowered to experience higher profits are the costs of goods sold which can be reduced from 69% to 65% of sales and also the advertising and sales expenses...
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...Case Study: PizzaPalace’s Capital Structure Made by A. C a. Provide a brief overview of capital structure effects. Be sure to identify the ways in which capital structure can affect the weighted average cost of capital and free cash flows. The capital structure decision change the value of the firm either through the the free cash flow or the cost of capital. V = ∑ ∞ t=1 FCFt (1 + WACC)t With FCF= NOPAT-change in ( NOWC+NFA) WACC= wd (1-T) rd + wers An additional debt has an effect on WACC and FCF: On WACC: -debt increase the cost of stock rs as the stockholders require a higher return due to the risk associated with additional debt -debt reduce the tax paid by the company as the interest is tax deductible -debt increase the risk of bankruptcy so debtholders will require a higher promised return rd ***low taxes Vs high cost of equity,high cost of debt => uncertain effect on WACC On FCF: -the probability of bankruptcy increases and generates direct costs ( legal fees,fire sales..) and indirect costs: lost customer s( NOPAT decreases) , reduction in productivity of employees , and reduction in credit offered by suppliers ( A/P decrease so NOWC increase ) - bankruptcy risk affects agency cost : decrease them bu reducing wastful spending And increase them by causing the manager to be too risk averse: underinvestment...
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...Alicja Nowak-Igwe ID D03509235 FI 516 Advance Managerial Finance Mini Case a) Provide a brief overview of capital structure effects. Identify the ways in which capital structure can affect the WACC and FCF. Capital structure presents how a company finance its operations. It is expressed as percentage of debt, preferred stock, common equity used in financing a company's operations.[1] WACC calculates a company's “cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation.”[2] “WACC depends on percentage of debt and common equity (wd) and (ws), the cost of debt (rd) and cost of stock (rs ) and the corporate tax rate (T)”.[3] WACC = wd(1 – T)rd + wsrs The effect of debt on WACC and Free Cash Flow is influenced by impact of the capital structure on value.[4] Capital structure affects the WACC and FCF of a company in many ways. The debt holders have a right to a cash flow before shareholders, which means that dividend can't be paid out unless all obligations toward debt holders for the specific period of time are met. Because of that, the cost of stock, rs goes up.[5] A high debt increases the risk of bankruptcy for a company, which might able to meet all payments. This risk of bankruptcy causes pre-tax cost of debt, rd, to increase.[6] In addition, increased risk of bankruptcy reduces ed free cash flow, which can be...
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...DELSA/ELSA/WD/HEA(2004)6 Private Health Insurance in OECD Countries: The Benefits and Costs for Individuals and Health Systems Francesca Colombo and Nicole Tapay 15 OECD HEALTH WORKING PAPERS Unclassified Organisation de Coopération et de Développement Economiques Organisation for Economic Co-operation and Development DELSA/ELSA/WD/HEA(2004)6 ___________________________________________________________________________________________ _____________ English text only DIRECTORATE FOR EMPLOYMENT, LABOUR AND SOCIAL AFFAIRS EMPLOYMENT, LABOUR AND SOCIAL AFFAIRS COMMITTEE DELSA/ELSA/WD/HEA(2004)6 Unclassified OECD HEALTH WORKING PAPERS NO. 15 PRIVATE HEALTH INSURANCE IN OECD COUNTRIES: THE BENEFITS AND COSTS FOR INDIVIDUALS AND HEALTH SYSTEMS Francesca Colombo and Nicole Tapay Francesca Colombo is with the OECD Health Policy Unit. At the time this work was conducted, Nicole Tapay was with the OECD Financial Markets Division. English text only Document complet disponible sur OLIS dans son format d’origine Complete document available on OLIS in its original format DELSA/ELSA/WD/HEA(2004)6 DIRECTORATE FOR EMPLOYMENT, LABOUR AND SOCIAL AFFAIRS OECD HEALTH WORKING PAPERS This series is designed to make available to a wider readership health studies prepared for use within the OECD. Authorship is usually collective, but principal writers are named. The papers are generally available only in their original language – English or French – with a summary...
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...CASES IN FINANCIAL MANAGEMENT SYLLABUS FIN 522 Professor James A. Gentry Cases In Financial Management 343M Wohlers Hall Spring Semester 2009 333-7995 2043 BIF j-gentry@uiuc.edu Office Hours: 10:30 a.m. to 11:45 a.m. on Mon. and Wed/. or by Appointment I. Teaching Objectives Financial decision making cases are used to… • Create a highly interactive learning environment; • Learn about the application of financial management and credit analysis concepts; • Discover what you do not know about the practice of financial management; • Show what you have learned; • Highlight the relationships between strategic goals and the creation of firm value; • Develop techniques for interpreting a firm’s financial data and strategic plans; • Enhance your critical thinking and problem solving skills; • Expand your understanding of financial theory and its application; • Improve your listening and cooperative learning skills. II. Learning Promises At the end of this course your will be able to… • Think like a financial manager; • Interpret a company’s financial health by evaluating the performance...
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...SECONDARY RESEARCH ON “WASHING MACHINE” A dissertation submitted to: Dr. Bejoy John Thomas, MBA, NET (Qualified), M.Phil.Ph.D., In partial fulfillment of the requirements for the award of the degree MASTER OF BUSINESS ADMINISTRATION BY SUJANABENAZIR.M Jamal Institute of Management, (Approved by AICTE, Newdelhi) Jamal Mohamed College (Autonomous) Tiruchirappalli-620020 1 INDUSTRY INFORMATION 2 1: GROWTH AND EVOLUTION OF THE WASHING MACHINE INDUSTRY IN INDIA:Washing machines made their mark in the Indian market in the eighties. Videocon was the first company in India to introduce washing machines. Over the years, it has remained a market leader, with a overall market share of 35% by adopting flexible strategies, which are modified as and when the need arises. Initially, the challenge was to wean away homemakers from their traditional methods of washing clothes. But then, owing to high prices, the market appeared to be limited only to upper income urban households. The 1990s saw a changein the socio-economic scene in the country. Rapid growth, increase in the number of working women, changing life styles and higher aspiration levels with exposure to satellite television and easy consumer finance meant that demand for consumer goods rose phenomenally. Sales of semi-automatics outstrip those that in the fullyautomatic segment. This has been due to a variety of factors, price being one of them. As semi-automatic washing machines are cheaper than the fully automatic...
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...market-required rate on the Nike’s debt. In order to solve for the total debt, I had to find out the market value of the debt. In doing so I multiplied the book value by the percent of face value that the debt was currently selling for (.9560) or the present value of the debt. I was able to use my calculation from the CAPM as my cost of equity (10.36%). In solving for the percentage of debt I simply subtracted my percentage of equity from 100. Lastly in figuring the tax shield, I used the rate of 38%, which was obtained by adding state taxes of 3 percent to the U.S. statutory rate from Exhibit 5. 2. If you do not agree with Cohen’s analysis, calculate your own WACC for Nike and be prepared to justify your assumptions. This is the formula I used in calculating Nike’s WACC: WACC= Wd*Kd(1-T) + We*Ke First, I reexamined the cost of debt (Kd) which in this case is the...
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...RETAILER AND CONSUMER PANELS NIELSEN APRIL 24TH 2014 Catherine SECLET April 24th 2014 Copyright ©2012 The Nielsen Company. Confidential and proprietary. Agenda Part 1 : « Market Research » Market and Nielsen Part 2 : Retailer Panel Part 3 : Consumer Panel Part 4 : How to use Panels ? Framework 2 PART 1A : THE «MARKET RESEARCH» MARKET Catherine SECLET April 24th 2014 Copyright ©2012 The Nielsen Company. Confidential and proprietary. MARKET RESEARCH INSTITUTES MISSION To provide clients with all data and information required to be able to take best marketing and commercial decisions To Understand requirements, opinions and behaviors on Markets To Propose a reading sheet for the society, understand social behaviors, and understand markets evolutions - - 4 Copyright ©2012 The Nielsen Company. Confidential and proprietary. MAIN COMPANIES IN FRANCE : • Turnover = around 2 milliards € • How many people engaged in Market research sector : 11 300 • • • • • • • • • • • • • • nielsen, TNS Secodip Worldpanel (Kantar group) IMS, IRI, GFK, NPD, IPSOS, IFOP, TNS Sofrès, Research International, Millward Brown, BVA Médiamétrie … 5 Copyright ©2012 The Nielsen Company. Confidential and proprietary. MARKET RESEARCH SECTOR SPLIT IN 3 : QUALITATIVE SURVEYS: (15%), QUANTITATIVE SURVEY (AD HOC SURVEYS): (52%) PANELS SURVEYS AND CONTINUOUS TRACKING (33%). Source: Syntec NIELSEN WORKS ON THESE 3 PARTS, BUT OUR CORE BUSINESS IS...
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...BREVIA Recently Formed Polyploid Plants Diversify at Lower Rates Itay Mayrose,1* Shing H. Zhan,1 Carl J. Rothfels,2 Karen Magnuson-Ford,1 Michael S. Barker,3 Loren H. Rieseberg,1,4 Sarah P. Otto1 olyploidy (or whole-genome duplication) is a widespread feature of plant genomes, but its importance to evolution has long been debated. Polyploids have been postulated to be evolutionary dead ends because of the inefficiency of selection when genes are masked by multiple copies (1). However, most plant species have experienced at least one genome doubling early in their history (2), suggesting that rather than being an evolutionary dead end, polyploidy is a route to evolutionary success. A recent study (3) confirmed the ubiquity of polyploidy, with about 35% of vascular plant species being recent polyploids (“neopolyploids,” having formed since their genus arose), representing 15% of speciation events in flowering plants and 31% in ferns. It remains unknown, however, whether the abundance of polyploids is a consequence of higher diversification rates following polyploidy or of frequent polyploid formation. We estimated diversification rates of neopolyploids relative to their diploid congeners. We compiled a data set of angiosperm (n = 49) and seed-free vascular plant (SFVP, including ferns and lycophytes; n = 14) generic-level groups in which ploidy levels could be estimated from cytological and phylogenetic data (4). Over 500 ploidy shifts were inferred with a probabilistic model of...
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...Case 12 “Best practices “in Estimating the Cost of Capital The Cost of Capital The purpose of this case is to present evidence on how some of the most financially sophisticated companies and financial advisers estimate capital costs. This evidence is valuable in several respects. First, it identifies the most important ambiguities in the application of cost-of-capital theory, setting the stage for productive debate and research on their resolution. Second, it helps interested companies benchmark their cost-of-capital estimation practices against best-practice peers. Third, the evidence sheds light on the accuracy with which capital costs can be reasonably estimated, enabling executives to use the estimates more wisely in their decision-making. Fourth, it enables teachers to answer the inevitable question, “How do companies really estimate their cost of capital?” Survey Findings The detailed survey results appear in Exhibit 2. The estimation approaches are broadly similar across the three samples in several dimensions. • Discounted Cash Flow (DCF) is the dominant investment-evaluation technique. • WACC is the dominant discount rate used in DCF analyses. • Weights are based on market not book value mixes of debt and equity.8 • The after-tax cost of debt is predominantly based on marginal pretax costs, and marginal or statutory tax rates. • The CAPM is the dominant model for estimating the cost of equity. Some firms mentioned other multi-factor asset-pricing models...
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...Wm. Wrigley Company Case Analysis Adrienne Johnson, Ramona Rhodes, Makpal Shotbassova Webster University FINC 5880: Corporate Finance FALL I TERM September 10, 2014 Author Note Certificate of Authorship: This paper was prepared by me for this specific course and is not a result of plagiarism or self-plagiarism. I have cited all sources from which I used data, ideas, or words either quoted or paraphrased. Introduction Blanka Dobryn is a managing partner of Aurora Borealis LLC. This hedge funds goal is to acquire a large stake in the Wrigley Jr Corporation. Once this happens then Aurora borealis LLC will encourage WM Wrigley Jr to reorganize the capital structure. The Wrigley Company at this point does not have any debt. Dobryn, is thinking that they can make this company more valuable if they raise their debt and use that money to either pay dividends or repurchase their stocks. (Brunner, 2010) Our job today is to find out the best way to go about restructuring the company using different financial strategies that will put the company at minimal risk. Effects of using debt to recapitalized In researching options, there are a few things that should be considered. Assuming that everything will be positive, there are great benefits to restructuring. The EPS would increase because there would be less shares outstanding after the buyback. The market would look favorable upon that, thus increasing the share price. If Wrigley is able to borrow at a lower rate...
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