It may be debt financing or equity financing. The cost of debt financing is interest which is the before tax cost of capital, while after tax cost of capital is r (1-t). If the interest rate or yield to maturity is 6.5% and the rate of tax is 40%, it means that before tax cost of capital is 6.5% and after tax cost of capital is 3.9%. In equity finance the cost of capital is dividend. If the rate of dividend is 10%. The after tax cost of capital and before tax cost of capital are same, which is
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chapter The Equity Method of Accounting for Investments The first several chapters of this text present the accounting and reporting for investment activities of businesses. The focus is on investments when one firm possesses either significant influence or control over another through ownership of voting shares. When one firm owns enough voting shares to be able to affect the decisions of another, accounting for the investment can become challenging and complex. The source of such complexities
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Cases in Healthcare Finance Case 16 Solution Case 16 - 1 CASE 16 SOLUTION (11/17/10) Copyright 2010 by FACHE SOUTHERN HOMECARE Cost of Capital Case Information Type This case is nondirected, in that it does not contain a specific list of questions that students must answer. Rather, the case contains general guidance or concerns expressed by various parties that students should consider when developing their solutions. If you, as the instructor, want to convert this case to a directed
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Weighted Average Cost of Capital I choose Costco Corporation, which is an American based company that sells a variety of merchandise. The company is also a wholesale company and it supplies its products and services to various countries despite the United States of America. The company is traded on NASDAQ with ticker symbol COST. As at 2015, the company had revenue worth US $ 116.553 billion, operating income worth US $ 3.62 billion, total assets worth US $ 33.44 billion, total equity worth US $
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Year Table of Contents 1.0 Liquidity Ratio…..……………………………………………..………………………………………………………..……………3 1.1 Current Ratio 4 1.2 Quick Acid Test 5 2.0 Debt Ratio…..…………………………………………………………………………………………………………………..………9 2.1 Debt to Equity Ratio 6 2.2 Total Debt to Equity Ratio 6 2.3 Debt to Total Assets Ratio 7 2.4 Capital Gearing Ratio 8 2.5 Proprietors funds to total assets 8 2.6 Long term debt-total capitalization 9 2.7 P-E ratio 9 3.0 Coverage Ratio…..……………….…………………………………………………………………………………………………14
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MP A R Munich Personal RePEc Archive The Pecking Order, Trade-off, Signaling, and Market-Timing Theories of Capital Structure: a Review Anton Miglo University of Bridgeport 2010 Online at http://mpra.ub.uni-muenchen.de/46691/ MPRA Paper No. 46691, posted 6. May 2013 19:07 UTC The Pecking Order, Trade-off, Signaling, and Market-Timing Theories of Capital Structure: a Review Anton Miglo Associate professor, University of Bridgeport, School of Business, Bridgeport, CT 06604, phone
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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
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Managerial Behavior, Agency Costs and Ownership Structure Michael C. Jensen Harvard Business School MJensen@hbs.edu And William H. Meckling University of Rochester Abstract This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence
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WACC and why is it important to estimate a firm’s cost of capital? WACC is weighted average cost of capital, which is the expected rate of return on average from all the company’s existing debts and securities. It takes into account all different types of financing in the company’s capital structure. The reason it is important to estimate WACC is because it measures what it costs the firm to take on a project based on its current Debt and Equity mix. When the firm decides to take on a project it
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0.91 Deb/Equity = 0.53 Bottom-up unlevered Beta = 0.911+1-35%0.53 = 1.04 IV- Estimating a Cost of Debt An interest coverage ratio EBITInterest Expense=13,734,0003,058,000,000 = 4.49 A synthetic rating for Dean Foods 4.25 < 4.49 < 5 therefore rating is A C.A pre-tax cost of debt for your firm Dean Food’s synthetic rating is A → Default spread based upon rating = 1.00% → Pre-tax cost of debt=Riskfree Rate+Default Spread=3.9%+1.00%=4.9% D. An after-tax cost of debt for
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