JOHN MOLSON SCHOOL OF BUSINESS | CASE ANALYSIS: NIKE INC. – COST OF CAPITAL | FOR PROF. EDWARD WONG | | ARUN KUMAR DURAIRAJ – 27416008 NIDISH PC – 27254423 VIPUL PARTI – 27246307 | 12/3/2015 | | Evaluation
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proportion of debt, preference and equity capitals in the total financing of the firm’s assets. The main objective of financial management is to maximize the value of the equity shares of the firm. Given this objective, the firm has to choose that financing mix/capital structure that results in maximizing the wealth of the equity shareholders. Such a capital structure is called as the optimum capital structure. At the optimum capital structure, the weighted average cost of capital would be the minimum
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The Modigliani–Miller theorem (of Franco Modigliani, Merton Miller) forms the basis for modern thinking on capital structure. The basic theorem states that, under a certain market price process (the classical random walk), in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed.[1] It does not matter if the firm's capital is raised by issuing stock or selling debt. It does not matter what the firm's dividend
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*Interval measure=Current assets/Average daily operating costs,*Average daily operating costs=Cost of goods sold/365,*Total debt ratio=(Total assets – Total equity)/Total assets,*Debt/equity ratio=Total debt/Total equity,*Equity multiplier=Total assets/Total equity,*Long-term debt ratio=Long-term debt/(Long-term debt + total equity),*Times interest earned=EBIT/Interest,*Cash coverage ratio=(EBIT + Depreciation)/Interest,*Inventory turnover=Cost of goods sold/Inventory,*Day’s sakes in inventory=365days/Inventory
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Lecture Notes Financial Accounting Theory III Prof. Alfred Liu Chapter 1: Reporting Equity Investments in Other Companies Example 1: The Cost/Equity Method and Increase of Investment Company A made an investment in one of its local competitors, Company B. For the following events, use the appropriate accounting method and record journal entries for Company A. 1/2/2012 – A purchased 10% of B’s shares for $20,000. 12/31/2012 - B reported net income of $100,000 and declared and paid dividends
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Gardner, Carl B. McGowan Jr., and Susan E. Moeller1 ABSTRACT In this paper, we apply the trade-off theory of capital structure to Microsoft. We use data for bond ratings, bond risk premiums, and levered CAPM betas to compute the cost of equity and the weighted average cost of capital for Microsoft at different debt levels. This study shows the impact of increasing financial leverage on WACC. As financial leverage increases, the WACC decreases until the optimal debt ratio is reached, after which, the
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have a higher net present value, and ultimately which will be most profitable to Marriott at the present time, therefore increasing shareholder wealth. Balance sheets reflect all company debt, so by reducing debt Marriott can decrease their Debt to Equity ratio, becoming more attractive to new and existing shareholders. Marriott’s plan to repurchase shares when they are undervalued can positively affect share price and therefore shareholder value, but it is not directly in line with their project-based
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and debt. Weighted average cost of capital (WACC) is the average after tax cost of all the sources. It is calculated by multiplying the cost of each source of finance by the relevant weight and summing the products up. Formula For a company which has two sources of finance, namely equity and debt, WACC is calculated using the following formula: Cost of equity is calculated using different models for example dividend growth model and capital asset pricing model. Cost of debt is based on the yield
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Running head: DIVIDENDS, CAPITAL STRUCTURES DECISIONS Dividends, Capital Structures Decisions Ma. Cesarlita G. Josol MBA - Acquisitions Strayer University 1 DIVIDENDS, CAPITAL STRUCTURES DECISIONS 2 Use the following information for Questions 1 through 3: Boehm Corporation has had stable earnings growth of 8% a year for the past 10 years and in 2013 Boehm paid dividends of $2.6 million on net income of $9.8 million. However, in 2014 earnings are expected to jump to $12.6 million
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CEO of Road King Trucks, Inc. and he's proposing a new product to the top management, chief design and manufacturing engineers. How much inportantce should be given to the energy cost situation? What are the project's cash flows for the next twenty years? What assumptions did you use? What is the company's cost of capital? What is the appropriate discount factor for you to use in evaluationg the bus project? If you decide to go ahead with the project, which of the two engines should be used
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