WEIGHTED AVERAGE COST OF CAPITAL (WAAC) 4/28/2015 Table of Contents TASK REQUIREMENT 25% 3 WEIGHTED AVERAGE COST OF CAPITAL (WACC) 3 WACC Formula: E /V * Re + D/V *Rd * (1-Tc) 3 DEMONSTRATION OF APPLICATION KNOWLEDGE 55% 5 Describe capital structure 5 Indicate how these might be useful to determine the feasibility of the capital project 5 Recommend which is more appropriate to apply to project evaluation. 5 Define marginal cost of capital 5 ACADEMIC WRITING 20% 7 References
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1 Marriot Corporation: The Cost of Capital The University of Hong Kong Group 5 January 29, 2016 GUO Weizuo, Aurora 3035235642 guoweizuo2014@163.com HE Fei, Vincent 3035236608 vincenthefei@gmail.com LI Yao, Steve 3035159109 liyao@connect.hku.hk LOU Chaoyue, Laura 3035236414 lauralou@hku.hk Catalog 1. Four components of Marriott’s financial strategies consistent with its growth objective ............... 1 2. The weighted average cost of capital for Marriott Corporation
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it so important to estimate a firms cost of capital? The WACC (weighted average cost of capital) is a percentage figure resulting from a calculation method by which the adequate cost of capital of a firm is expressed. It considers the composition of a company’s funding, be it debt or equity. A corporation whose source of funding is equity by 100 percent will have a WACC equal to the cost of equity. By contrast, a levered company will have to reflect the cost of debt as well. The WACC takes their
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at a 40% rate. It has $5 million in assets and, because it is all equity financed, $5 million in equity. Suppose the firm is considering replacing half of its equity financing with debt financing that bears an interest rate of 8%. a) What impact would the new capital structure have on the firm’s profit, total dollar return to investors, and return on equity? b) Redo the analysis, but now assume that the debt financing would cost 15%. c) Repeat the analysis required for Part a, but now assume that
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Costs of Financial Distress 16.1 Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 60% and a recession is 40%. It is projected that Good Time will generate a total cash flow of $250 million in a boom year and $100 million in a recession. The firm’s required debt payment at the end of the year is $150 million. The market value of Good Time’s outstanding debt is $108.93 million. Assume a one-period model, risk
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debt and equity, of the firm. They must also determine the cost of their debt, the cost of their equity, and the cost to acquire new capital. Generally, a firm’s cost of capital is what it costs the firm to acquire money. It may also be thought of as the rate required by investors (lenders or shareholders) for the use of their money. The cost of capital could be the cost of the financing the firm already has or it could be the cost of new financing, which is referred to as the marginal cost of capital
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INC.: COST OF CAPITAL What is WACC and why it is important to estimate a firm’s cost of capital? Do you agree with Joanna Cohan’s WACC calculation? What is WACC and why it is important? Do you agree with Joanna Cohan’s WACC calculation? WACC (Weighted average cost of capital) is the minimum return that a company must earn on existing asset base on satisfy its creditors, owners and other providers of capital WACC is important to estimate a firm’s cost of capital because: The cost of capital
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The current issue and full text archive of this journal is available at www.emeraldinsight.com/0307-4358.htm Analysis of the effects of ESOP adoption on the company cost of capital Stoyu I. Ivanov Accounting and Finance Department, College of Business, San Jose State University, San Jose, California, USA, and ESOP adoption 173 Janis K. Zaima Accounting and Finance Department, San Jose State University, San Jose, California, USA Abstract Purpose – The purpose of this study is to examine
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Assignment Source Document: HBS case- Marriott Corporation: cost of capital Prepare a case discussion report. The report must at least address the following issues 1. Are the four components of Marriott’s financial strategy consistent with its growth objective? Marriot has following four financial strategy components * Manage rather than own hotel assets. * Invest in projects that increase shareholders values * Optimize the use of debt in the capital structure * Repurchased
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• The first is debt. The essence of debt is that you promise to make fixed payments in the future (interest payments and repaying principal). If you fail to make those payments, you lose control of your business. • The other is equity. With equity, you do get whatever cash flows are left over after you have made debt payments. Aswath Damodaran! 4! Global Patterns in Financing… Aswath Damodaran! 5! And a much greater dependence on bank loans outside the US…
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