changes of capital structure across a number of NZX listed companies between 2007 & 2012. After analysing the company’s performance, capital structure and WACC changes, we found that the majority of the companies we investigated focused on the WACC illustrated a considerable reduction in 2012 compared with 2007. Moreover, the average of WACC in 2007
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Midland Energy Resources Inc.: Cost Of Capital Introduction Midland Energy Resources have a senior vice president, Janet Mortension, of project finance. She was preparing her annual cost of capital for midland as well as for each of its following three divisions: * Exploration & production (E&P) * Refining & Marketing (R&M) * Petrochemicals Midland was a global company with operations in oil and gas. Midland corporate treasury had began analysis and preparation of annual cost of capital for
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Weighted Average Cost of Capital (WACC) Formula for WACC = [D/V(1-Tc)Rd] + (E/V x Rc) + (E/V x Rp) Where: D/V = percentage of financing that is debt E/V = percentage of financing that is equity Tc = Corp. Tax Rate Rd = return on debt Rc = return on common stock (equity) Rp = return on preferred stock (equity) Computation: WACC = (.40 x .062) + (.50 x .124) + (.10 x .08) = .0248 + .062 + .008 WACC = .0948 or 9.48% This means
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financial accounting, performance assessments, M&A proposals, and stock repurchase decisions. They were performed at division of business unit level as well as corporate level. In addition, the estimated cost of capital is an essential component in WACC and discounted cash flow calculations that can help Midland evaluate the expected growth and prospective investments. A too high estimate of Midland’s cost of capital causes a lower NPV because of the higher discount rate. As a result, Midland decision
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Company Background Pioneer Petroleum Corporation (PPC) was formed as a result of several independent firms that operate in oil refining, pipeline transportation, and industrial chemical field merging together. The company has been through several changes since it was established in 1924 and over the years it became an integrated company with many products and services such as plastics, agriculture chemicals, and real-estate development. In 1985, PPC became a hydro-carbons based company, concentrating
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1. Calculation of WACC of a Multi-Division Corporation 2. Sources of Data and their limitation 3. Use of CAPM, Cost of Equity, Effect of Leverage on the Ce, WACC 4. Use of data for comparable to estimate asset betas for division-specific cost of capital 5. Biases and Limitations No financial modeling. In the previous years they would include WACC as part of case study 3 – Now it has been changed to 2 – without any actual financial statements. No excel modeling. Focused on how to address
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company. Weighted Average Cost of Capital The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital. A company's assets are financed by either debt or equity. WACC is the average of the costs of these sources of financing, each of which is weighted
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possible place in the NorthPoint Large-Cap Fund, Ford needs to know Nike’s cost of capital. One of the most useful ways to measure the cost of capital is the weighted average cost of capital (WACC). Theoretically, the optimal capital structure in the mix of types of financing that produces the lowest WACC. WACC is calculated by multiplying the cost of each type of financing a company uses, be it debt or the many types of equity, by their respective weights. It is the rate of return that a company needs
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requirements, and tax effects are all included in these cash flows. The CFO also made subjective risk assessments of each project, and he concluded that both projects have risk characteristics that are similar to the firm’s average project. Allied’s WACC is 10%. You must determine whether one or both of the projects should be accepted. A. What is capital budgeting? Are there any similarities between a firm’s capital budgeting decisions and an individual’s investment decisions? Answer: [Show S11-1 through
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it shows how much interest the company has to pay for every marginal dollar it finances. A firm's WACC is the overall required return on the firm as a whole and, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities and mergers. Also, WACC is the appropriate discount rate to use in stock valuation. No, I don’t agree with Cohen’s WACC calculation. The cost of debt was determined incorrectly. To determine the cost of debt I calculated
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