Midland Energy Resources, Inc.: Cost of Capital Case Objectives This case gives you a chance to apply our ideas about cost of capital (WACC) to a real firm with separate divisions. Assignment You are a team of Finance Professionals with experience in analyzing the cost of capital for divisions of companies and companies overall. Janet Mortensen has been struggling with her calculations, wondering if her application is correct given the amount of grumbling she has heard. She has asked
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Chapter 11 Efficient Capital Markets: Evidence 1. Roll’s critique (1977) is based on the assumption that capital markets are in equilibrium. What happens when the market is not in equilibrium? Suppose new information is revealed such that the market must adjust toward a new equilibrium which incorporates the news. Or suppose that a new security is introduced into the marketplace, as was the case of new issues studied in the Ibbotson (1975) paper. Given such a situation, the abnormal performance
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Interview Questions This page is here to help us all be prepared for the types of questions that are typically asked during an interview. We have tried to break them down into the categories listed below as best as possible. Personal Questions - Finance Questions - Accounting Questions - Other Questions [pic] Personal Questions Q. Spend 5 minutes and walk me through your resume. A. The first question you will most likely be asked. On the surface it seems like an easy question, but you will
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debt-free cash flows and a hurdle rate equal to or derived from the WACC for the project of division, are typically used to evaluate most prospective investment, yet for overseas projects are evaluated as streams of future equity cash flows and discounted as a rate based on the cost of equity. Optimize Capital Structure: Midland optimized its capital structure by carefully exploring the borrowing capacity inherent in its energy reserves and in long-lived productive assets such as refining facilities, and
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Financial Management Case - Boeing 7E7 1. Background 1.1 General introduction of Boeing Boeing is the world's largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems. Boeing is organized into two business units: Boeing Commercial Airplanes and Boeing Defense, Space & Security. According to Boeing’s 2002 Annual Report, the revenues split between its commercial airplanes division and its integrated defense systems division is about 50/50
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* Contents 1. Executive Summary 3 2. Analysis Model 3 3. Company Overview 3 4. Industry Outlook 3 5. Company Evaluation 4 Free Cash Flow Estimation 4 Cost of Equity, Cost of Debt, WACC Calculation 5 Discounted Cash Flows and Company Evaluation 5 6. Sensitivity Analysis 6 7. Final Recommendations 6 8. Appendix 7 Appendix 1: Historical Free Cash Flow Analysis 7 Appendix 2: Historical Free Cash Flow Analysis 8 Appendix 3: Growth Estimations 9 Appendix 4: 2012 Operating
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which to evaluate the prospective IRRs from the Boeing 7E7? Please use the capital asset pricing model to estimate the cost of equity. At the date of the case, the 74-year equity market risk premium (EMRP) as estimated to be (see below). Which beta and risk-free rate did you use? Why? Applying the Capital Asset Pricing Model estimate the required rate of return for Boeing equity for the last 74 years: RBA= RF+ β(RM-RF)in which: * Market Risk Premium 74 year period is a very long time horizons
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FINA510-13A Financial Theory and Corporate Policy Group Assignment 1 Capital Structure Group 58 1. Overview of New Zealand Industry Selection We have chosen 12 different industries with in 21 listed companies belong to 21 NZX industry groups shows in Table 1 below. The three latters in brackets followed by each company name are their listed symbol in New Zealand Stock Exchange. Table 1 List of Selected Industries and Firms. 1) Consumer | 7) NZ Debt Market | Pumpkin Patch
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Questions Case #5 – Marriott Corporation: The Cost of Capital 1. Are the four components of Marriott’s financial strategy consistent with its growth objective? 2. How does Marriott use its estimate of its cost of capital? Does this make sense? 3. What is the weighted average cost of capital for Marriott Corporation? a. What risk free rate and risk premium did you use to calculate the cost of equity? b. How did you measure Marriott’s cost of debt? 4. If Marriott used a single corporate
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Financing Strategy High-growth companies, especially ones that rely on high-cost venture or private equity for funding, have the preservation and strategic investment of capital as a top priority. Financing new ventures is a high risk proposition for investors and they seek relatively high returns, or costs of capital, in order to compensate for this risk. Accordingly, high-growth companies typically conserve their high-cost equity capital to fund growth and expansion plans, the hiring of key talent, acquisitions
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