the WACC for the firm will be different at different blends of debt and equity financing (which means the value of the firm will be different at different blends of debt and equity financing) You can see the effect in the WACC formula: WACC = Wd(ATRd) + Ws(Rs) (no preferred stock in this example) If AT Rd = 6% and Rs = 12%: At zero debt: WACC = 0(.06) + 1.00(.12) = .12, or 12% At 50/50 debt and equity WACC = .50(
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Taunton Construction Inc.'s capital situation is described as follows: Debt: The firm issued 10,000 25-year bonds10 years ago at their par value of $1,000. The bonds carry a coupon rate of 14% and are now selling to yield 10%. Preferred Stock: 30,000 shares of preferred stock were sold six years ago at a par value of $50. The shares pay a dividend of $6 per year. Similar preferred issues are now yielding 9%. Equity: Taunton was initially financed by selling 2 million shares of common stock
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1. Define or briefly describe in a sentence (max 3) these terms - be specific. a. Benefit of portfolio diversification? Portfolio diversification should even out events that cause unsystematic risk. By doing this the positive outcomes will outnumber the negative outcomes in a portfolio. b. What must be true about the securities in the portfolio to achieve this benefit? Diversification benefits are more positive when the stocks or bonds are not directly linked. Diversification
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Advanced Corporate Finance Marriott Case 1.The WACC for Marriot Corp is 10.68% if taken alone. Another way would be to use the standardized weights of all the other divisions lodging,restaurant and contract services WACC . This gives us a WACC of 10.21% for the Entire Entity. a.The risk free rate used was 4.58% (Long Term Us Government Bond Returns 1926-1987) as these represent an asset of similar risk and longevity(Lodging can be considered to be a long term business).The Market Risk used was
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mutual-fund management firm called NorthPoint and the portfolio manager, Kimi Ford, is deciding whether or not to purchase the recently falling shares of Nike. * The first key issue to determine is whether Cohen’s WACC was evaluated correctly. * Upon evaluating if this WACC is correct, is Nike a good investment? BACKGROUND Nike’s Performance * Share price has significantly decreased from beginning of the year * Revenues had plateaued since 1997 at around $9 billion * Net income
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Corporation Finance (Course 35200) Spring 2016 Professor Kelly Shue Assignment # 2 –Sampa Video Names: | Signatures: | Student # | Section: | Louise (Chiao-ling) Chang | | 458381 | 03 | Joonmo Lee | | 458378 | 03 | Sonja Schut | | 452395 | 03 | Alvin(Yaxin) Yu | | 456062 | 03 | Honor Code: I pledge my honor that I have not violated the Honor Code in preparation of this case assignment. 1. What are the annual projected free cash flows
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pg 472 E (R) = Rf + βE(EMRP) = 4% + 1.15 x 8 = 13.2% Slide 6 applies Re = E1/Po + g = D0(1+g)/P0 +g = 1.8(1+0.05)/34 + 0.05 = 10.56% Rc_ave = 13.2+10.56/2 = 11.88% Question 6 pg 472 WACC (cost of funds the company uses to expand – equity and debt)= 13.2 + 10.56/2 = 11.88% WACC = [E/E+D ]x KE +[ D/D+E] x KD x (1-T) TTM = 12 yrs 105% of Face value (nominal, principal) 100 1million R100 ytm is your market rate when issued but after that you have to calculate it. YTM at
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Daniel Hughes FINA 450 MID TERM Pioneer Petroleum Corporation Case 2-27-13 Background: Formed in 1924 by a merger of several firms, Pioneer Petroleum Corporation (PPC) is in the business of refining oil, building pipeline transportation and creating industrial fields. Pioneer is currently one of the primary producers of crude oil in the United States and is one of the top producers of Alaska crude oil. PPC is currently the lowest cost refiner on the western side of the globe, and has been
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1. Do you think Mercury is an appropriate target for AGI? Why or why not? Mercury is an appropriate target for AGI. AGI is looking to increase its revenue and profit by utilizing synergies. The initial aim of AGI for acquiring Mercury Athletics is to increase leverage with contract manufacturers and to boost the cooperation with the retailers and distributors. AGI was one of the most profitable and successful companies in the market segment, but the firm’s size remained rather small in comparison
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decision would be to buy the stock and if it’s overpriced the decision would be of not buy. Valuation Technique Used: The valuation technique used is to discount the cash flows of Nike incorporation in the subsequent years using appropriate WACC and estimating the total enterprise value and then computing the equity value per share by diving the equity value by the number of shares outstanding. (Exhibit: Valuation) •
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