Cohen's first mistake was to use Nike's book value of equity in her calculation of the WACC; $3,494.50. Though the book value is an accepted estimate of the debt value, the equity's book value is an inaccurate measure of the value perceived by the shareholders, therefore an irrelevant source when finding the equity value. Moreover, Nike is a public traded firm, therefore its equity value can be best reflected by its market value. Market Value of Equity = Market price of the share * Number of Shares Outstanding
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Article Discover the expert in you. How to Calculate the WACC From a Balance Sheet By Morgan Adams, eHow Contributor Weighted average cost of capital (WACC) is a calculation of a company's cost of capital, or the minimum that a company must earn to satisfy all debts and support all assets. The calculation includes the company's debt and equity ratios, as well as all long-term debt. Companies usually do an internal WACC calculation to assess overall company health. The larger and more complex
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The Debt-Equity Trade Off: The Capital Structure Decision Aswath Damodaran Stern School of Business Aswath Damodaran 1 First Principles n Invest in projects that yield a return greater than the minimum acceptable hurdle rate. • The hurdle rate should be higher for riskier projects and reflect the financing mix used - owners’ funds (equity) or borrowed money (debt) • Returns on projects should be measured based on cash flows generated and the timing of these cash flows; they should
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at book value, the Equity Investment account is equal to the Stockholders’ Equity of the investee company. It, therefore, includes the assets and liabilities of the investee company in one account. The investor’s balance sheet, therefore, includes the Stockholders’ Equity of the investee company, and, implicitly, its assets and liabilities. In the consolidation process, the balance sheets of the investor and investee company are brought together. Consolidated Stockholders’ Equity will be the same as
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To find the corporate cost of capital for Midland Energy Resources we will need to find the cost of capital of the three divisions within the company. The formula for WACC is: WACC=rd * (D/V) * (1-t) + re * (E/V) where, rd= Cost of debt re= Cost of equity D= Market value of debt E= Market value of equity V= D+E= Value of the company (or division) T= Tax rate To calculate the cost of debt (rd) for each division we will use the data in the case by adding the premium over the US treasury securities
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determine an appropriate Cost of Capital for Marriott Corporation. To do so, we have based our assesment on the information and assumptions contained in the text of Dan Cohrs “Marriott Corporation: The Cost of Capital”. As stated in the lecture, Marriot Corporation is composed of three different divisions: lodging, restaurants and contract services. So, during this workshop we calculated a different cost of capital for each one of the three divisions. To determine the Cost of Capital for each division
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estimate Nike’s cost of capital so Ms. Ford could make an informative decision whether to buy Nike shares for her Fund. I will analyze Ms. Cohen’s methodologies and results of Nike’s cost of capital. Ms. Cohen used the book value for debt and equity when she should have used the market value. The market value of debt is equal to $1,277.42 and the market value of equity is $11,427.44 (Exhibit 1). We these two corrected value we can find the correct weight of debt and weight of equity. I calculated
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subsequent years. To come up with the operating income, she multiplied revenue in 2001, $9,488.8 million, by the revenue growth percentage then added the growth amount to the revenue. The projected revenue for 2002 is $10,153 million. Then she multiplied cost of goods sold percentage of sales, 60.0%, and the selling and administrative percentage of sales, 28.0%, by the projected revenue of 2002. After subtracting the two amounts from the projected net income, the projected operating income for 2002 is $1
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Capital, Private equity placements, Public equity offerings and other government programs (Hisrich, Peters, & Shepherd,2010). The Ready Clip will plan to seek funding or financing by using the Self of Personal Funds from the above referenced methods list. T he Self or Personal Funds source of funding method is the most utilized funding or financing for venture start-ups, as well as being the least expensive for cost and control (Hisrich, Peters, & Shepherd, 2010). The low cost and control of
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Calculation: a) Estimation of Cost of Debt: For the purpose of calculation of cost of debt for the company, we have used the most recent debt issued by the company. Referring to note 2 of the financial statements, we found that during July, 2015, the company issued $650 million of 4.25% notes due in July 2025 and $450 million of 5.55% notes due in July 2045. (Kohl's, 2015) Accordingly, we used the average coupon rate of these two recently issued bonds to represent the cost of debt in the WACC formula
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