Case Preparation Chart Facts & Issues: Kimi Ford was the portfolio manager in NorthPoint Group, who was concerned about whether or not to add Nike, Inc. shares into her fund Analysts had different opinion about the company prospects; Lehman Brothers suggested a strong buy while UBS and CSFB recommended a hold. She asked her assistant, Joanna Cohen, to calculate the company’s cost of capital precisely. On the report, Joanna Cohen used weighted average cost of capital (WACC) to calculate
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serve as a good study aid as you prepare for the Final Examination. Question | Marks Available | Reference | 1 | 5 | Lesson 10 | 2 | 5 | Lesson 10 | 3 | 5 | Lesson 10 | 4 | 5 | Lesson 10 | 5 | 10 | Lesson 11 | 6 | 15 | Lesson 11 | 7 | 10 | Lesson 11 | 8 | 10 | Lesson 11 | 9 | 5 | Lesson 12 | 10 | 10 | Lesson 12 | 11 | 10 | Lesson 12 | 12 | 10 | Lesson 12 | Total | 100 | | 1. Explain the interactions among market efficiency, capital budgeting, and the cost of capital. (5
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inferiority of gold with respect to both mean return and volatility, would anyone hold gold? If so, demonstrate graphically why one would do so. Explain. Answer: Even though it seems that gold is dominated by stocks, gold might still be an attractive asset to hold as a part of a portfolio. If the correlation between gold and stocks is sufficiently low, gold will be held as a component in a portfolio, specifically, the optimal tangency portfolio. Efficient frontier Efficient frontier b. Given the
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H. J. HEINZ: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES The report that follows endeavors to determine an appropriate Weighted Average Cost of Capital (WACC) for the H. J. Heinz Company at the end of the 2010 fiscal year. Further, the report attempts to provide reasonable explanations for the decisions and assumptions that were made throughout the required calculations, specifically around the firm’s capital structure, cost of debt and cost of equity. Finally, the report offers an opinion
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Marriott Corporation - The Cost of Capital (Abridged) The Marriott Corporation is comprised of three major lines of businesses, lodging, restaurants and contract services. In order to decide which projects to take on in these divisions, each year a hurdle rate must be set which they use to discount a project’s cash flow to see if it will be profitable enough. We will conduct an analysis to calculate the hurdle rate for Marriott as a whole and for each division. We will use WACC as the hurdle rate
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M.I.T. Sloan School of Management Spring 1999 15.415 First Half Summary Present Values • Basic Idea: We should discount future cash flows. The appropriate discount rate is the opportunity cost of capital. • Net Present Value: The net present value of a stream of yearly cash flows is N P V = C0 + C1 C2 Cn + + ··· + , 2 1 + r1 (1 + r2 ) (1 + rn )n where rn is the n year discount rate. • Monthly Rate: The monthly rate, x, is x = (1 + EAR) 12 − 1, where EAR is the effective annual rate. The EAR
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FIN 5439 – Capital Structure and Risk Management Nimlendran Guidelines for the “Cost of Capital at Ameritrade” Case This is a group assignment: * Each group will provide answers to the questions given below Note: You do NOT have to provide a full case report * Submit only one report per team. Submit a word document on Canvas course site. * The report should be well formatted and using 12 point font. Double spaced. All the tables should have their headings and all the units (%
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Cost of Capital Calculating Cost of Capital: * Component Costs * Capital Structure Component Costs: * Cost of debt – R d * Cost of preferred stock – R p * Cost of equity – R e Component Cost of Debt (R d) * Loan: R d = Effective Annual Rate of Loan. EAR=1+APRmm-1 * Bond: R d = YTM. P0=c×1Rd-1Rd(1+Rd)t+FV(1+Rd)t Where: “c” is dollar coupon; “FV” is Face or par value, which is $1,000; “t” is remaining years to maturity. “P 0” is current market price of
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Supplement of Formulae and Present Value Tables Formulae 1. CAPITAL STRUCTURE a) After-Tax Marginal Cost of Debt: kb = k(1− T) or where b) (1− T)I F k = interest rate; T = corporate tax rate; I = annual interest payment on debt; F = face value of debt Cost of Preferred Shares: kp = Dp NPp where c) Dp = stated annual dividend payment on shares; NPp = net proceeds on preferred share issue Cost of Common Equity: i) Cost of Common Shares (Capitalization of Dividends with Constant
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37%(including dividend). Apache is a large multinational corporation, engaged in the energy industry. In addition, the company is very active in the acquisition market. ◇Valuation. In this report, the main method I used to value the company is DCF model with reasonably estimated data based on the company’s historical performance. ◇Main growth driver: (1) the increasing needs of oil and gas.(2) exploitation and extension of existing producing fields.(3) acquisition. source: google finance Business
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