WORLDWIDE PAPER COMPANY Team: Id. Number Lorena Tamez Rangel 638130 José Luis Domínguez Damas 809448 Santiago De Hoyos 795568 Héctor Guerrero Pacheco 945840 May 4, 2011 WORLDWIDE PAPER COMPANY Brief Description: In December 2006, Bob Prescott, controller for the Blue Ridge Mill, was considering the addition of a new on-site longwood woodyard. This will bring two benefits: Eliminate the need to purchase shortwood from an outside supplier, and the company will
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Chapter 18 Capital Budgeting and Valuation with Leverage 18-1. Explain whether each of the following projects is likely to have risk similar to the average risk of the firm. a. The Clorox Company considers launching a new version of Armor All designed to clean and protect notebook computers. b. Google, Inc., plans to purchase real estate to expand its headquarters. c. Target Corporation decides to expand the number of stores it has in the southeastern United States. While there may be some
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calculating their weighted cost of capital correctly. This has caused them to invest in riskier areas rather than those with greater chance of having a positive net present value. PP needs to reevaluate which method to use as well as how to correctly compute WACC. Analysis As stated before PP has been weighing two alternatives options to
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The pound-based WACC for Grand Met is 12.81%, while its dollar-based WACC is 11.01% 1.748 (1.027/1.043) = 1.721185 Spot rate, expected exchange rate. This shows that the dollar is appreciating in relation to the pound. This is expected as inflation is expected to be higher in the UK. This also explains the differences in the WACC between the two countries. In order to preclude arbitrage opportunities and account for difference in inflation rates, pound-based WACC has to be higher than the
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use the CAPM method as the DDM focuses on dividends and Nike has not paid out dividends to date. Based on the above calculations (excluding DDM) I came to the conclusion that Cohen’s WACC is incorrect. Using the data I found Nike’s WACC is 10.26% (Exhibit 1). Though I don’t agree with Cohen’s methodology to find the WACC I think she was on the right track with her
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complete. In that case, funding, financing or transactions can be easily extended to a global base. After anticipating the future cash flows, it is vital to estimate the weighted-average cost of capital(WACC) in order to calculate the present value of the cash flows. By definition, WACC is calculated based on cost of equity and cost of debt associated with their value weighted respectively. However, Lopez found it difficult and inappropriate to estimate a local discount rate due to the following
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used to finance long-term assets. * Preferred Stock * Equity: * Common stock * Retained Earnings Step 1: D + PS +E = V or value of firm Step 2: D/V; PS/V; and E/V as representation of capital structure. Cost of Capital: WACC=DV×Rd×1-T+PSV×Rp+EV×Re Capital Structure: * Book Value Capital Structure * Market Value Capital Structure Market Value Capital Structure * Market Value of
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CHAPTER 14 COST OF CAPITAL Answers to Concepts Review and Critical Thinking Questions 1. It is the minimum rate of return the firm must earn overall on its existing assets. If it earns more than this, value is created. 2. Book values for debt are likely to be much closer to market values than are equity book values. 3. No. The cost of capital depends on the risk of the project, not the source of the money. 4. Interest expense is tax-deductible. There is no difference between pretax
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Case 15 Teletech Corporation I. Summary: The Teletech Corporation is a U.S company that provides integrated information movement and management. It has two main business divisions, which are The Telecommunication Services, and The Products and Systems. In Telecommunication Services division, it primarily provided many kinds of phone service to business and residential customers. In fact, it performed a network for 7 million customer lines throughout Southwest and Midwest. The division archived an
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gathered together here (and in some cases repeated) the derivations of some of the formulas used in Chapter 19. We cover five topics: 1. Deriving the WACC formula. 2. Does WACC necessarily decline when leverage increases? 3. Levering and unlevering. 4. The Miles-Ezzell formula. 5. The MM formula. Deriving WACC We start with a firm’s expected operating cash flows C1, C2, ... , CT. With all-equity financing, these flows would be discounted at the opportunity
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