9-3 a) After Tax Cost of debt = (1-tax rate)*borrowing rate=5.6% Then we can use the CAPM model to calculate the Levered cost of equity, which is 15% b) First we need to calculate the FCF (EBIT-Tax payments+Depreciation-investments), which is 15400, then use the firm FCF-interes=Equity FCF. Then we need to find the Debt Valuation from the balance sheet which is 25000, then use the Equity FCF to calculate the Equity Valuation, which is Equity FCF/ Levered Cost of equity, which is 93333 Now
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The Buyout of AMC Entertainment Private Equity & Leveraged Buyout November 30, 2009 FI 8320 – Corporate Finance Strategy Kevin Mullally Aaron Nowak Regina Ordonez Joel Pierce Jeff Smith The Buyout of AMC Entertainment Table of Contents Executive Summary....................................................................................................................................... 1 The Market for LBOs ..........................................................................
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Multiple-choice questions (10 questions, 1 points each, 10 points total) 1) According to M&M Theorem in the absence of corporate taxes, an increase in leverage (i.e., an increase in D/E ratio) will lead to a) Higher cost of equity b) Low cost of equity c) No change in cost of equity d) The information provided is not sufficient to chose any of the above questions Ans: A 2) According to M&M Theorem in the absence of corporate taxes, an increase in leverage (i.e., an increase in D/E ratio)
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CHAPTER 3 COST OF CAPITAL SOLUTIONS 1. B is correct. The cost of equity is defined as the rate of return required by stockholders. 2. B is correct. Debt is generally less costly than preferred or common stock. The cost of debt is further reduced if interest expense is tax deductible. 3. C is correct. First calculate the growth rate using the sustainable growth calculation, and then calculate the cost of equity using the rearranged dividend discount model: g ¼ ð1 À Dividend payout ratioÞðReturn
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Investments in Marketable Equity and Debt Securities (SFAS #115, for fiscal years beginning after 12/5/1993) |Reporting Category |Classification Criteria | |Held to Maturity |Debt securities the investor has the positive intent and ability to hold to maturity | |Trading Securities |
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CHAPTER 12 Risk, Cost of Capital, and Capital Budgeting Multiple Choice Questions: I. DEFINITIONS WACC e 1. The weighted average of the firm’s costs of equity, preferred stock, and after tax debt is the: a. reward to risk ratio for the firm. b. expected capital gains yield for the stock. c. expected capital gains yield for the firm. d. portfolio beta for the firm. e. weighted average cost of capital (WACC). Difficulty level: Easy CAPM b 2. If the CAPM is used to estimate
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2014, and FY 2014 on January 31, 2015 (Saturday nearest January 31). From page 39, we are told that 95% of inventories in 2014 and 2013 were counted using a LIFO costing method, stating the lower of cost or market. However, Kroger’s fuel inventory levels are determined using the FIFO cost method. The company uses the Link-Chain, Dollar-Value LIFO method to calculate its LIFO charge. Also on page 39, we are told that Kroger mainly uses the straightline method for depreciation and amortization
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Msc Finance & Investment Core Course I: Corporate Finance & Value Creation Lecture 1 3 Modigliani & Miller (1958) ‘The Cost of Capital, Corporation Finance and the Theory of Investment’ 3 Modigliani & Miller 2 6 Modigliani and Miller 3 7 Modigliani & Miller – 1958 4 12 Fama & French (1998) ‘Taxes, Financing Decisions, and Firm Value’ 18 FAMA FRENCH 2 20 Fama & French 3 21 Fama & French – 1998 4 22 Graham (2000) ‘How Big Are the Tax Benefits of Debt?’ 25 GRAHAM (2000) 2 28 Graham 3
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THEORY OF THE FIRM: MANAGERIAL BEHAVIOR, AGENCY COSTS AND OWNERSHIP STRUCTURE Michael C. JENSEN and William H. MECKLING* University of Rochester, Rochester, NY 14627, U.S.A. Received January 1976, revised version received July 1976 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’
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Executive Summary In this valuation project, we calculated The Ford Company’s free cash flow for the next five years into 2019. Then we calculated the value of the firm by utilizing FCF and WACC (weighted cost of capital). Finally, we compared the stock price that we predicted to the stock price to the current stock price of 2015. Company Overview The Ford Motor Company, founded by Henry Ford, is an American automotive company with headquarters in Dearborn, Michigan and incorporated on July
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