structure can affect the weighted average cost of capital and free cash flows. The capital structure decision change the value of the firm either through the the free cash flow or the cost of capital. V = ∑ ∞ t=1 FCFt (1 + WACC)t With FCF= NOPAT-change in ( NOWC+NFA) WACC= wd (1-T) rd + wers An additional debt has an effect on WACC and FCF: On WACC: -debt increase the cost of stock rs as the stockholders require a higher
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www.sciedu.ca/ijfr International Journal of Financial Research Vol. 5, No. 1; 2014 Shareholders’ Wealth and Debt- Equity Mix of Quoted Companies in Nigeria Amos O. Arowoshegbe1 & Francis Kehinde Emeni2 1 Department of Accounting, Ambrose Alli University, Ekpoma, Edo State, Nigeria 2 Department of Accounting, University of Benin, Benin City, Edo State, Nigeria Correspondence: Amos O. Arowoshegbe Ph.D; ACA., Department of Accounting, Ambrose Alli University, Ekpoma, Edo State, Nigeria. Tel:
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(1 + i)-n]/ i} Perpetuity PV = Pmt /i Dividends No growth P0 = d1 /r Dividends constant growth P0 = d1 /(r - g) Effective interest rate ie = (1 + i)m - 1 Net Present Value NPV = PV of future cash flows less Cost of the investment PVI or Benefit Cost Ratio = PV (Future Cash Flows) / PV (Capital Outlay) Variance/CAPM Expected return E(R) = [(Pi) (Ri)] or E(R) = [(R)]/n Variance VAR 2 = [(Pi) (Ri- E(R))2] Standard Deviation SD = 2
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b. Since mergers are frequently financed by debt rather than equity, a lower cost of debt or a greater debt capacity are rarely relevant considerations when considering a merger. c. Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification, including more stable earnings. However, since shareholders are free to diversify their own holdings, and at what's probably a lower cost, diversification benefits is generally not a valid motive for a
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the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’s cost of capital. Jones has provided you with the following data, which she believes
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forecasts. The students must estimate a weighted-average cost of capital (WACC) for Boeing’s commercial-aircraft business segment in order to evaluate the IRRs. As a result of that analysis, the students identify the key value drivers and distinguish, on a qualitative basis, the key gambles that Boeing is making. The general objective of this case is to exercise students’ skills in estimating a weighted-average cost of capital and cost of equity. The need for students to estimate a segment WACC
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[pic] [pic] Assignment On “A Business Analysis of Square Pharmaceutical Ltd.” Course Title: Financial Statement Analysis Course code: ACT-513 Assignment on “Business Analysis of” (Square Pharmaceutical Ltd) Submitted to: Mr. Mohammed Sakhawat Hossain Assistant Professor Faculty of Business and Economics Daffodil International University Submitted by: Mujahed Hossin 113-14-588
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growth in earnings from $98M in 2002 to $1.84B in 2011, due to improved operating margins (Appendix 1). The improvements in ROE and ROA have outpaced our competitors, implying that we are getting higher returns for each dollar invested in shareholder’s equity and assets. Although we have a more aggressive debt strategy, our D/E ratio never exceeded 50% from 2002 to 2011. Despite the slight 4% decrease in our cash and current ratios, their values are still well above one. We are still in a good financial
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lending long.” For example, if the loans have an interest rate of 10% per year, the bank earns $9 in income from its loans over the year. If the $100 of checkable deposits is in a NOW account with a 5% interest rate and it costs another $3 per year to service the account, the cost per year of these deposits is $8. The bank’s profit on the new deposits is then $1 per year (a 1% return on assets). General Principles of Bank Management Now that you have some idea of how a bank operates, let’s look
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We are pleased to offer our consulting opinion in regards to the cost of capital, debt, and equity. We have reviewed and analyzed the industry and market data provided as well as heavily researched your industry to understand trends, risks, growth potential, etc. The attached report is a detailed summary of problems and decisions faced based on the method of calculating the cost of capital, cost of equity, and the cost of debt. We have focused our efforts to specifically outline the correct
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