Naomi Stanford The look on Subway Finance and Investment Co. Subway Franchising The company I chose is Subway. I chose this because majority of my clients own subway franchises and I think it is a good company to determine the WACC and the return on equity. I a lot of my clients repeatedly open new subway locations and I ask myself, is the return on the franchise investment worth it? When I receive the accounting work for my subway locations from my client, I notice that the expenses that they
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To find the corporate cost of capital for Midland Energy Resources we will need to find the cost of capital of the three divisions within the company. The formula for WACC is: WACC=rd * (D/V) * (1-t) + re * (E/V) where, rd= Cost of debt re= Cost of equity D= Market value of debt E= Market value of equity V= D+E= Value of the company (or division) T= Tax rate To calculate the cost of debt (rd) for each division we will use the data in the case by adding the premium over the US treasury securities
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Case 3: Marriot Corporation Marriot公司的投資方案評估運用的是現金流量折現法並計算其相對應的目標率(Hurdle rate)，我們以其WACC做為目標率，先預估總體的WACC，又因公司旗下擁有三個事業部：lodging, restaurant 和contract services，因此我們將分別計算三個不同事業部門的WACC數值以方便公司未來應用於其投資方案的決策。 1.求出 Marriot Corporation整體之 WACC：= + 在估算公司的beta值時，通常會使用Hamada公式(=[1+(1−)/])，但在此個案中其負債呈現高成長為非固定常數，與負債融資上升時公司的財務風險會同時上升，因其不符合公式須具備的假設前提，故不可使用。因此決議直接估算整間公司的。 由於債券和股市關聯度較低，且公司償債能力良好(較無倒債風險)，所以我們假設 =0，因此， =(E/V)* +(D/V)*=0.59*1.11+0.41*0=0.65 接下來，調整公司的資本結構更趨穩定，目標的資本結構：D/V=60%，E/V=40% =0.65=0.4*
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simply the sum of its parts (MVdebt + MVequity). Analysis: Teletech must apply two different hurdle rates to accommodate for the risk in each segment. The WACC for the Services segment is 8.47% and the WACC for the Products and System segment is 11.40% (Exhibit 1). To estimate beta and capital structure weighting for the calculation of WACC, we used a comparable analysis for companies in the Services industry and Equipment/Computer Equipment industry (Exhibit 2). Rick Phillips claims that the
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Chapter 910 The Cost of Capital ANSWERS TO END-OF-CHAPTER QUESTIONS 910-1 a. The weighted average cost of capital, WACC, is the weighted average of the after-tax component costs of capital—-debt, preferred stock, and common equity. Each weighting factor is the proportion of that type of capital in the optimal, or target, capital structure. The after-tax cost of debt, rd(1 - T), is the relevant cost to the firm of new debt financing. Since interest is deductible from taxable income
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Guillermo Furniture Store Analysis FIN571 October 22,2012 Portia Boyd Abstract This paper will define and discuss the different alternatives available to Guillermo Furniture Store. I will include a sensitive analysis; the optimal weighted averages cost of capital, discuss the use of multiple valuation techniques in reducing risks and calculate the net present value of future cash flows for each of the alternatives. Guillermo Navallez was owner of Guillermo Furniture Store located in Sonora
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that the estimate of the cost of capital itself was questionable. The controller who is in charge of the financial part has been using book value weights to calculate WACC but it considers only long-term capital value. At this point, the problem is that they want to decide what weights should be used and know how much difference of WACC calculated by the choice of weights and current problems of procedures for estimating the costs of debt and equity. When Peter Vanderhein was in college as a business
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Marriot`s financial strategy consistent with its growth objective? 1 2 How does Marriott use its estimate of its cost of capital? Does it make sense? 3 3 What is the WACC for Marriott Corporation? 3 3.1 Risk free rate? Market risk premium? 3 3.2 Cost of debt? 4 4 What type of investments would you value using Marriott´s WACC? 6 5 If Marriott used a single corporate hurdle rate for evaluating investment in each of its lines of business, what would happen to the company over time? 7 6 What is
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model for Crisp Markets, Crisp Markets needs to consider some aspects like WACC, payment terms & security issue, delivery and customer satisfaction. From the perspective of finance, at first, we calculate the net income and cash flow of the following six years. Then, we find out it is not appropriate for Crisp Markets to use the recommended 4% discount rate. WACC should be used as discount rate. The calculated WACC is 11.9%, which is the required return rate. After that, by using the net
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$750 thousand and keeps the level of debt constant in perpetuity is $1,528. The NPV of the project using after-tax WACC and assuming a constant 25% target debt-to-value ratio in perpetuity is $1,470. Answer 1 – 3, please see attached spreadsheet for calculations. 25% debt balances at year end imply interest tax shield. The value of APV is higher than the value of WACC. Because APV method doesn't have to hold debt at a constant proportion of value. So, it can be assumed that the risk of
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