The Cost of Capital 11-1 a. The weighted average cost of capital, WACC, is the weighted average of the after-tax component costs of capital—-debt, preferred stock, and common equity. Each weighting factor is the proportion of that type of capital in the optimal, or target, capital structure. b. The after-tax cost of debt, kd(1 - T), is the relevant cost to the firm of new debt financing. Since interest is deductible from taxable income, the after-tax cost of debt to the firm is less
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reflects the venture partners' understanding of: • the markets in which the products will be sold, including industry trends, tariffs and other barriers to entry; • domestic and international competition in the chosen industry; • the costs of human resources, technology, and other components of the venture; • the expected revenue that the project can generate, as well as sources of capital. one should also take into account repayment strategies for any borrowed funds; •
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Abstract A prototype 10-Mega Watts electricity central receiver plant located east of Barstow, California known as Solar Two. This plant was sponsored by a consortium of industries and utilities in partnership with the United States Department of Energy and thereafter in February 1997 began the regular production of electricity. The primary aspect of the evaluation of the performance process involves the financial analysis and the low-electricity analysis. The Solar Two is a 10 mega Watt electricity
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Unit III - Consolidation Subsequent to Acquisition Date Key Concepts: Recording on the cost basis requires additional calculations of Ps net income and consolidated retained earnings Under the equity method, the Parent’s net income and retained earnings equals consolidated net income and consolidated retained earnings Preparation of consolidated statements – cost and equity methods - Exhibit 5.16, page 205 Impairment testing for intangible assets with definite useful lives: two step process
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Weighted Average Cost of Capital 1 Weighted Average Cost of Capital (WACC) • This lecture answers the following questions: - What is the “opportunity” cost of funds for a firm, and thus the firm’s discount rate used in NPV calculations? - What is a firm’s Asset Beta & how do we lever Asset Betas and unlever Equity Betas? - Link to previous lectures - No longer use a “given” discount rate. We will calculate the correct discount rate for our NPV calculations. WACC - 1 2 1.0 The Cost of Capital:
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tax rate is 40%. Determine the weighted average cost of capital? QUESTION 2: Equity Unlimited (EU) an all equity firm expects EBIT of $1,000,000 next year, after that it will decline at 2.5% per annum. The corporate tax rate is 40%, and cost of unlevered equity is 10%. EU is considering replacing some of the equity with perpetual debt. It has been determined that risk of bankruptcy is a function of amount of debt. PV of bankruptcy related costs will be $2,000,000. EU is considering the following
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repurchase shares. From the calculation below, we can see that total market value of equity declined from 10,000 to 6,700, while total value per share rose from $10 to $11.70. Therefore, as the firm borrows and repurchases shares, the total value of equity declined, but the price per share rose. Assume that all the new debt is used to repurchase shares. Share price = (Total market value of equity + Cash paid out)/ Number of original shares Based on this assumption change, we will
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Answer (A): The statement of comprehensive income is defined as the change the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners (Fasb.org, 2014). The statement includes revenue, finance costs, tax expenses, discontinued operations, profit share and profit or loss. Income statement covers
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senior vice president, Janet Mortension, of project finance. She was preparing her annual cost of capital for midland as well as for each of its following three divisions: * Exploration & production (E&P) * Refining & Marketing (R&M) * Petrochemicals Midland was a global company with operations in oil and gas. Midland corporate treasury had began analysis and preparation of annual cost of capital for the corporation as a whole and for each divisions as part of annual capital
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Financial Accounting: Basic Accounting Concepts: (The Income Statement) This chapter introduces the idea of income as used in financial accounting, and describes the income statement. Course of discussion outline: The last six basic concepts namely the following: 6. Time period 7. Conservatism 8. Realization 9. Matching 10. Consistency 11. Materiality The nature of income Now let us first differentiate the balance sheet and income statement, balance sheet described were which
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