702596 Valuation 1 Ever since the seminal contribution of Modigliani and Miller (1958), a key result of corporate finance theory is that a project's cash flows should be discounted at a rate that reflects the project's risk characteristics. Discounting cash flows at the firm's weighted average cost of capital (WACC) is therefore inappropriate if the project differs in terms of its riskiness from the rest of the firm's assets. (Kruger, Landier &Thesmar 2011) According to Modigliani and Miller
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deposits in South Africa due to the following reasons: 1) It is a stable investment with long-term prospects of 15 years and a floor price of $80 per metric ton, and 2) The NPV of the project is $181.75 million, thus providing enough cash flows to cover debt and provide dividends to shareholders. Stable Iron Ore Investment The iron ore investment satisfies New Earth’s desire to diversify its business from precious metals with this potential investment life of 15 years. Prices are expected to stay over
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CAPITAL CASH RETURN on ASSETS 100.00% ADJUSTED ROA 90.00% $40,000,000 ADJUSTED CFBF DEBT FREE $4,000,000 #7 EXCESS CASH ACTUAL CASH $50,000,000 CFBF DEBT FREE $6,000,000 $6,875,000 $6,000,000 $0 $0 2011 $8,000,000 $8,000,000 $2,000,000 0.00% 0.00% 2010 $10,000,000 $8,890,000 $5,000,000 10.00% 2009 0.50% 0.18% #6 DEBT FREE CASH FLOW $3,582,000 30.00% 2008 CFBF ACTUAL $12,000,000 EBITDA $12,000,000
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dropped considerably. This report analyses Orica's overall performance for 2012. Utilising the data provided by their Income Statement, Balance Sheet and Cash Flow Statement, the financial analysis ratios: Liquidity, Efficiency, Profitability, Financing and Investment ratios, are all calculated and analysed to present their financial standing at the end of the year. Comparing the relationships of these ratios reveals that Orica decreased their liquidity, but suffered lower profitability with
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dropped considerably. This report analyses Orica's overall performance for 2012. Utilising the data provided by their Income Statement, Balance Sheet and Cash Flow Statement, the financial analysis ratios: Liquidity, Efficiency, Profitability, Financing and Investment ratios, are all calculated and analysed to present their financial standing at the end of the year. Comparing the relationships of these ratios reveals that Orica decreased their liquidity, but suffered lower profitability with
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advertising, and R&D. Other expenditures for operations were generally normal for various expenses like interest on debt and accrued income taxes. Things are proceeding like normal. Financing is the biggest concern for Bennett Alexander. Notes payable, long term debt and short term debt account for about $1,125,000 in cash flow from financing. Bennett Alexander is curious as to why so much debt has been accumulated. That will be addressed next. 4. A phrase that is the opposite of what the average consumer
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Markets were provided. In order to calculate Telus’ cost of capital we need to calculate the company’s Cost of Equity, Cost of Debt, and Tax Rate along with their weighted cost and then apply these to the Weighted Average Cost of Capital (WACC). Once the cost of capital has been calculated then we can proceed to make recommendations in regards to the company’s future investments. Cost of Equity To calculate Telus’ cost of capital we decided to use the CAPM model simply because this model accounts for
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long-term debt to finance the acquisition of Midland Freight, Inc. for a few reasons. The company is heavy on assets, the debt ratio will only grow to 0.40 with the added $50M in debt. Also, the firm will benefit from an added $2M in a tax shield and be able to return $12.7M a year to its stockholders and investors, instead of $8.9M if equity is raised to finance the acquisition. Lastly, the stock price and earnings per share will increase to $3.87 in comparison to an equity-financed
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cost of debt, equity, preferred shares in order to determine the overall weighted average cost of capital (WACC) within the company. What is WACC? Weighted average cost of Capital is defined as a calculation of a firm’s cost of capital in which each category of capital is properly weighted. All capital resources are used in determining this cost which includes common stock, preferred stock, bonds and any other long term debt. Calculating overall WACC. Use of short and Long term debt When
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Submission Date: 17 May 2013 Word Count: 590 Question 1: Exhibit 1 Company A Company B Company C 14.28 13 15.24 15.79 14.28 29 Return on assets (%) Return on Equity (%) Referring to Exhibit 1, the rationale behind using the net operating profit after tax (NOPAT) for the calculation of return on assets and return on equity instead of using the net income is that a company’s profits are isolated by removing non operating or nonrecurring items from the reported earnings. Hence, by eliminating
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