Definition of WACC The Weighted Average Cost of Capital (WACC) is the rate at which the firm is expected to pay for capital raised by issuing debt and equity to finance its assets. It is the minimum return that the company should earn to satisfy the needs of the debt holders and shareholders of the company. It is calculated by proportionally weighing each category of capital such as common stock, preferred stock, long term and short term debts, bonds etc. It is the discount rate used to calculate
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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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Capital structure refers to the way a corporation finances its assets through some combination of equity and debt. A firm's capital structure is the composition of structure of its liabilities. According to Modigliani-Miller theorem, in a perfect capital market (no transaction or bankruptcy costs; perfect information); firms and individuals can borrow at the same interest rate; no taxes; and investment decisions aren't affected by financing decisions. Modigliani and Miller made two findings under
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| | | | | | | ASSETS | Beg. of Season | | | LIABILITIES & EQUITY | Beg. of Season | Current Assets | | | | Current Liabilities | | | Seed | 20 | | | | | | | Fertilizer (20 lbs.=2 bushes) | 2 | | | | | | Total Current Assets | 22 | | | Total Current Liabilities | 0 | | | | | | | | | Fixed Assets | | | | Shareholders Equity | | | Land (5 bushels of wheat per acre) | 100 | | | | Seed from Baron
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Advanced Accounting Third Edition Susan S. Hamlen University at Buffalo, The State University of New York Ronald J. Huefner University at Buffalo, The State University of New York James A. Largay III Lehigh University Cambridge BUSINESS PUBLISHERS Cambridge Business Publishers ADVANCED ACCOUNTING, Third Edition, by Susan S. Hamlen, Ronald J. Huefner, and James A. Largay III. COPYRIGHT © 2016 by Cambridge Business Publishers, LLC. Published by Cambridge Business Publishers
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EEF UNIT Equity and Entrepreneurship Fund (EEF) was created by allocating a sum of Taka 100.00 Crore (Taka One hundred crore) in the Budget of the Government of Peoples Republic of Bangladesh for the financial year 2000-2001 with a view to encourage the investors to invest in the risky but otherwise promising two sectors, viz, software industry and food processing and agro-based industry. Bangladesh Bank is authorized by the Government to manage the EEF. A sum of Tk.200.00 (Taka two hundred
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Practice Questions for Finance 3000, Exam II, Fall 2009 Chapter 3 1. Ratios are used to compare different firms in the same industry. TRUE 2. Financial ratios are used to weigh and evaluate the operational performance of the firm. TRUE 3. Liquidity ratios indicate how fast a firm can generate cash to pay bills. TRUE 4. A banker or trade creditor is most concerned about a firm's profitability ratios. FALSE 5. Ratios are only useful for those areas of business that
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debating whether or not he should make an investment in the shrimp processing plant. We have concluded that he should make the investment in the processing plant if net present value (NPV) is positive. The NPV is calculated as: NPV= PV(benefits) – PV(cost) The goal here is to create value. Mr. Harris should only invest if the NPV is positive. To calculate the NPV of the processing plant, we are required to forecast a FCF and a discount rate. We have used the data from the Harris Seafood case to arrive
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to grow. The firm is currently financed completely with equity, and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures:
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creditor demands. However, since liquidity also has an opportunity cost associated with it—namely that higher returns can generally be found by investing the cash into productive assets—low liquidity levels are also desirable to the firm. It’s up to the firm’s financial management staff to find a reasonable compromise between these opposing needs. The recognition and matching principles in financial accounting call for revenues, and the costs associated with producing those revenues, to be “booked” when
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